June 18, 2009

Updated: Obama's financial regulation proposal

Everybody has an opinion on Obama's proposal for revamping financial regulation. I've been busy so I have no idea what's in the plan, so I don't have an opinion.

But, let me make one guess: I bet there's not a single word in the proposal -- nor, I presume, has there been a single word in all the commentary on the proposal -- about moderating the anti-redlining push for more mortgage lending to minorities with poor creditworthiness that was so central to the Sand State subprime mortgage meltdown that set off the financial crisis.

After all, how can anybody talk about reforming this when nobody will even talk about the fact that the federal Home Mortgage Disclosure Act database shows that 77% of subprime home purchase mortgage dollars in California in 2006 went to minorities?

Update: Well, I was wrong. The White House White Paper talks about the new Consumer Finance Protection Agency intensifying the push for more lending to minorities:
The Agency should enforce fair lending laws and the Community Reinvestment Act and otherwise seek to ensure that underserved consumers and communities have access to prudent financial services, lending, and investment.

A critical part of the CFPA’s mission should be to promote access to financial services, especially for households and communities that traditionally have had limited access. This focus will also help ensure that the CFPA fully internalizes the value of preserving access to financial services and weighs that value against other values when it considers new consumer protection regulations.

Rigorous application of the Community Reinvestment Act (CRA) should be a core function of the CFPA. Some have attempted to blame the subprime meltdown and financial crisis on the CRA and have argued that the CRA must be weakened in order to restore financial stability. These claims and arguments are without any logical or evidentiary basis. It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment. In fact, enforcement of CRA was weakened during the boom and the worst abuses were made by firms not covered by CRA. Moreover, the Federal Reserve has reported that only six percent of all the higher-priced loans were extended by the CRA-covered lenders to lower income borrowers or neighborhoods in the local areas that are the focus of CRA evaluations.

The appropriate response to the crisis is not to weaken the CRA; it is rather to promote robust application of the CRA so that low-income households and communities have access to responsible financial services that truly meet their needs. To that end, we propose that the CFPA should have sole authority to evaluate institutions under the CRA. While the prudential regulators should have the authority to decide applications for institutions to merge, the CFPA should be responsible for determining the institution’s record of meeting the lending, investment, and services needs of its community under the CRA, which would be part of the merger application.

The CFPA should also vigorously enforce fair lending laws to promote access to credit. Furthermore, the CFPA should maintain a fair lending unit with attorneys, compliance specialists, economists, and statisticians. The CFPA should have primary fair lending jurisdiction over federally supervised institutions and concurrent authority with the states over other institutions. Its comprehensive jurisdiction should enable it to develop a holistic, integrated approach to fair lending that targets resources to the areas of greatest risk for discrimination.

To promote fair lending enforcement, as well as community investment objectives, the CFPA should have authority to collect data on mortgage and small business lending. Critical new fields should be added to HMDA data such as a universal loan identifier that permits tying HMDA data to property databases and proprietary loan performance databases, a flag for loans originated by mortgage brokers, information about the type of interest rate (e.g., fixed vs. variable), and other fields that the mortgage crisis has shown to be of critical importance.

But, of course, the HMDA database is for prodding for more lending to minorities. Using it to check up on whether minorities are paying back their loans is unthinkable.

You can take Obama out of the ethnic shakedown racket, but you can't take the ethnic shakedown racketeer out of Obama.

My published articles are archived at iSteve.com -- Steve Sailer

28 comments:

rightsaidfred said...

Failed societies have blind spots. Ours appears to be a penchant for throwing resources at under performing NAMS.

Faust said...

Obama's financial regulation scheme seems to be more of the same. The truth of the "minority" mortgage meltdown is still largely an untold story... It was the policies supported by likes of Obama and Frank that caused this whole mess in the first place.

Anonymous said...

Bingo! Steve you put your finger right on it. I believe that this is also the reason CitiBank, BofA, etc, were not sold off. Who would have been left to lend to the diversity crowd?

William 1066 said...

'It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment'

I agree - it took our first Mexican President to get us into our current mess. In our American economic history, never has one man screwed up so much for so many.

Piper said...

"To that end, we propose that the CFPA should have sole authority to evaluate institutions under the CRA. While the prudential regulators should have the authority to decide applications for institutions to merge, the CFPA should be responsible for determining the institution’s record of meeting the lending, investment, and services needs of its community under the CRA, which would be part of the merger application."

Ooh, that's nice... since CFPA is to be a new agency, guess who will appoint all the top bureaucrats? And guess who the newly minted CFPA leaders will recruit?

I would be surprised if CFPA didn't turn out to have the most "diverse" staff of any agency, even more diverse than the civil-rights commission.

Note as well that the "prudential regulators," you know, the ones who supervise financial prudence are to be relieved of authority so that CRA evaluations can be imprudent.

Anonymous said...

As long as financial institutions are not allowed to package and leverage again, at least the damage won't be as bad.

Anonymous said...

have attempted to blame the subprime meltdown and financial crisis on the CRA and have argued that the CRA must be weakened in order to restore financial stability. These claims and arguments are without any logical or evidentiary basis.




AAAAA HAHAHAHA

whata bunch of b.s.

Anonymous said...

Anonymous said...
Bingo! Steve you put your finger right on it. I believe that this is also the reason CitiBank, BofA, etc, were not sold off. Who would have been left to lend to the diversity crowd?

6/18/2009



Exactly. Your tax dollars will fund bad loans to bad consumers. Whether you like it or not!

JeremiahJohnbalaya said...

[William 1066]
'It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment'

I agree - it took our first Mexican President to get us into our current mess. In our American economic history, never has one man screwed up so much for so many.

Then, you must not know the history of CRA, particularly how its punitive capabilites were increased. Originally, it was a "you must show efforts" thing, which became a "you must show results" thing.

Henry Canaday said...

What, exactly, is the theory requiring the CRA in 2009? I can see, barely, an argument for anti-discrimination law in employment on the theory that some of those all-powerful white people may not like to work alongside minorities, even though minorities are now plentiful in the workplace and most white people I know actually find them more amiable as co-workers than white colleagues. But why exactly would a banker mind lending to a minority if it is a sound loan? The contact between lender and borrower is brief and formal, not prolonged and intimate. And bankers make money by making sound loans.

There is more than a little intellectual thimble-rigging going on in the exculpation of CRA, Fannie, Freddie and FHA for the crisis. Very carefully stated data from the Fed do not capture the variety of ways the government pressured or seduced lenders to loosen loan standards for everybody to meet racial goals in lending.

Mr Lomez said...

Steve, or someone, can you help me understand this...

The way I read this particular article and have interpreted the CRA's role in the sub-prime era to this point is that the majority of bad loans (to minorities, or otherwise) happened outside the purview of the CRA. Even the minority borrowers who were particularly egregious in their failure to pay their mortgages, seem to have done their business mostly with non-CRA regulated institutions.

Here's the key sentence in the article: "the worst abuses were made by firms not covered by CRA. Moreover, the Federal Reserve has reported that only six percent of all the higher-priced loans were extended by the CRA-covered lenders to lower income borrowers."

What am I missing here?

Anonymous said...

'It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment'

This is like saying the federal government isn't allowing mass illegal immigration by pointing to our unenforced immigration laws.

~ Svigor

Anonymous said...

more than 25 years after

First, Steve pointed out that the Clinton administration significantly increased the scope of actions under the CRA. Repubs and Democrats alike agreed this was happening. It's obvious from the budget dollars, huge jump under Clinton and maintained/expanded under Bush.

Second, this is a great example of a coordinated leftist talking point, like the "Palin rape kit" thing. Matt Yglesias (at least one) was one of the original ones told to spread it by Think Progress and/or Journolist.

Anonymous said...

This proposal is a continuation of the same old problem, but at least it won't cause another financial meltdown if mortgages cannot be leveraged and sold. And they won't be leveraged and sold because nobody will buy them now.

Anonymous said...

Mr. Lomez makes a good point:

"The way I read this particular article and have interpreted the CRA's role in the sub-prime era to this point is that the majority of bad loans (to minorities, or otherwise) happened outside the purview of the CRA. Even the minority borrowers who were particularly egregious in their failure to pay their mortgages, seem to have done their business mostly with non-CRA regulated institutions.

"Here's the key sentence in the article: "the worst abuses were made by firms not covered by CRA. Moreover, the Federal Reserve has reported that only six percent of all the higher-priced loans were extended by the CRA-covered lenders to lower income borrowers.""

I imagine the institutions that were not regulated by the CRA and that made all these bad loans to minorities must have influenced by Bush's encouragement to lend to minorities, or perhaps they were influenced by the behaviour of the lending institutions that did fall under the purview of the CRA.

RobertHume said...

It's going to be harder for house bubbles to build due to the new ability to short house prices.


http://www.macromarkets.com/macroshares/housing.asp

So lenders won't be able to assume that prices will continuously go up ... they won't. So they will require some sort of down payment and assurance of payment of mortgage payments.

So unless the government simply gives money to minorities they won't be buying houses. More likely the government will just build low-cost housing for rent.

Anonymous said...

"More likely the government will just build low-cost housing for rent."

Yeah, and if it's high rise towers, Whites will get accused of "segregation" again, like happened with "the projects".

If it's apartment bldgs or single family houses in the suburbs, housing values in those neighborhoods will crash -- so we'll be right back in the midst of another mortgage meltdown.

DLL said...

"Exactly. Your tax dollars will fund bad loans to bad consumers. Whether you like it or not!"




This kind of crap only goes so far. Zimbabwe has been living of the wealth stolen from the former white ruling class, the copious donations of gullible, self-satisfied western liberals, and various international "aid" agencies. Anybody with half a brain knew the place was functioning under white rule. They had no debt and the infrastructure was superb by African standards. Only 28 years later, in spite of all the billions poured into the beacon of black independence, not even the wily Chinese are willing to give Uncle Bob more money.
South Africa is still coasting on the infrastructure (in all senses) and wealth left behind by Apartheid, and the money being poured in by western liberals, the UN, the EU, all sorts of "aid agencies", and FIFA. Those with a bit of perspective know that the new black middle class was created mostly on debt, and when the stream of money going in tapers off, the country is going to start heading south, like Zimbabwe. The new black middle class cannot maintain their status based on their own produictivity, which is simply far below that of China, India or any of the other rising powers.
Maybe black governments like the ANC in South Africa or Obama can hold enough whites hostage for a few years or even decades, but eventually Zimbabwe is your profile. And wealthy nations are not going to keep pumping up NAM's without ROI. Especially nations such as Japan, Korea, China, Russia, the Gulf States, Saudi or Israel. Western Europe will eventually also tighten the purse strings as the Euro begins to show it's structural weakness.

Anonymous said...

Suitcase With $134 Billion Puts Dollar on Edge

Mafia blamed for $134bn fake Treasury bills

Since no one else has commented on the 134.5 billion dollars in "fake" bearer bonds story, I guess I will.

Can someone explain this to me? I'm finance-illiterate but how does a fake 500 million dollar bond (the smallest denomination recovered) make even a shred of sense? WHO does one defraud with a 500 million dollar bearer bond? Isn't a fake 500 million dollar bearer bond an expensive way to go to jail?

Why did the Italian police just let the two "Japanese" men go? Why haven't their names been released (not even to the Japanese government according to their statement)? Why haven't they even been verified as to nationality?

Why did the Italian police bust them where and when they did? Why didn't they wait and nab the cash from the buyers (I can sorta explain this one away as jurisdictional greed)? Who tipped them off in the first place (the police don't search my luggage when I ride the train, maybe it's different in Italy)?

Why is it all over the press in Europe, but a non-story here?

This thing simply does not add up. Someone just got ROYALLY screwed, to the tune of 135 billion. Why do I have the sneaking suspicion the someone is the American taxpayer?

Seems likely to me that these were "grey" bonds, like a way for the government to launder money, and someone just did a bit of profit-taking. But the official story does not add up.

~ Svigor

Anonymous said...

Sounds like someone want to build another bureaucratic empire.

Maybe it will be staffed by NAMs.

Gene Berman said...

Svigor:

No expertise here but the scenario I'd imagine is delivery of the phony bond into a safe-keeping account in Switzerland associated with the account of a more or less regular (though crooked) depositor/customer.

The certificates would probably simply sit there for some time until a large number of them would be offered as collateral for a borrowing intended to finance a relatively short-turnaround-time speculation.

If the speculation were successful, the certificates wouldn't be involved: the loan would be repaid from profit. If the speculation went south, the phoniness would be exposed but the perps would have disappeared and found to be figments of construction. It's not that dissimilar from Madoff's gig: everyone
"knew" he had piles of actual stock-holdings undergirding his "investments." using phony bonds as collateral may be a simpler and easier way to "sell" them than actually trying to get cash from a buyer. I seem to recall 20 or 30 years ago something similar--but on a smaller scale--being run by slick Mafia types on a number of prominent WS firms. As I say, no expertise or concrete knowledge (but you oughtta grant me a little naturally-come-by "genetic understanding," wouldn'tchathink?)


speculation

Jeremiah Whitmoore said...

Obama's financial regulation scheme involves giving even more power over our economy to the Federal Reserve. This is the one institution with absolutely no accountability in our society and more than any thing else is responsible for the economic crises we are in.

Anonymous said...

Give a man a fish you feed him for a day. Teach a man how to fish and you feed him for a life time.

The problem the other side has is that their main voting block, the calibans, needs to keep being fed. They don't have the grey cells to make it in an increasingly global market place. Therefore they must keep being fed fish (subsidised financing and afirmative action jobs) to survive. If they were smarter they could have held on to some of the bubble money but as it is they need mo money.

Had Obama sold off the bloated failed banks, which happened to be the same ones that did the diversity lending, he would have in effect, flushed the punch bowl. The CRA would have gone back to its pre-1990s state of being.

Anonymous said...

And now the WSJ wants more shakedown, in the form of more people getting college degrees.

Man, more people getting Masters Degrees in Public Health Policy is just what we need.

Mr. Anon said...

"It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment."

Let's apply that reasoning to another area, shall we?

"It is not tenable that cigarette smoking could suddenly cause an inoperable lung cancer more than 25 years after the patient started smoking."

I'd say that the Obama administration is composed of idiots, except that they know exactly what they are doing.

Anonymous said...

As I say, no expertise or concrete knowledge (but you oughtta grant me a little naturally-come-by "genetic understanding," wouldn'tchathink?)

I don't understand what this means, sorry.

As for your explanation, did you read the linked articles? The author brings up a good point: who would accept as real a five hundred million or billion dollar bearer bond, without authenticating it with God first? A billionaire with Down's?

Why let the suspects go?

Why not follow them to their co-conspirators?

Or maybe the whole point of this is to get the story into the media? There has to be a good reason this story made the news.


Had Obama sold off the bloated failed banks, which happened to be the same ones that did the diversity lending, he would have in effect, flushed the punch bowl. The CRA would have gone back to its pre-1990s state of being.

Maybe it'll all end up as a 9/11-style moment of clarity.

Funny how they're saying "nobody could have foreseen (prevented?) this", just like they did after 9/11.

~ Svigor

David said...

The Cargo Cult syndrome is behind devaluation.

We notice that successful people have mortgages, jobs, and college degrees.

And we conclude from this that handing out mortgages, jobs, and college degrees (all at a price, of course...) to the lumpen will make them successful people. It's logical, ain't it?

The same "logic" is on display whenever a no-money-down never-never-plan hot-rodder rolls down the block one month ahead of the repo man, rims flashing. "Look at me - I'm a rich guy!"

Michael said...

Anti-redlining did not cause the crisis. The lenders knew that these debtors were risky but they treated aggregates that included them as though they were considerably safer than they were. If people who were paid staggering amounts of money to evaluate risks were capable or inclined to do their jobs it wouldn't matter who they were forced to lend to at comparatively less favorable rates. I get you've got a particular drum to beat but this is a symphony and right now you should be turning blank sheets in time.