You’ve heard over and over about how the 1977 Community Reinvestment Act (CRA) could not bear any blame for the mortgage meltdown that began in 2007 because the time lag was too vast. As the New York Times editorialized on October 15, 2008: “First, how could a 30-plus-year-old law be responsible for a crisis that has occurred only in recent years?”
That seems like a good question. Three decades is a long time.
Last Thursday, though, I found an eye-opening graph of cumulative Community Reinvestment Act promises by banks from 1977 through 2005. According to the September 2005 report CRA Commitments by the National Community Reinvestment Coalition (NCRC), which bills itself as "the nation's economic justice trade association of 600 community associations:”
As the chart below shows, $4.2 trillion in CRA dollars was committed from 1992 through 2005. In contrast, $8.8 billion was negotiated from 1977 through 1991.
When measured in terabucks, the Community Reinvestment Act was negligible until the 1990s. And it was still small potatoes until the Clinton “reforms” of 1995 and the rise of well-organized pressure groups of the kind affiliated with the NCRC.
But the biggest flood of CRA assurances came during the presidency of George W. Bush, who repeatedly called in 2002-2004 for 5.5 million more minority homeowners by 2010. Cumulative bank pledges (typically doled out over ten years) grew from $1.85 trillion in 2002 to $4.20 trillion in 2004.
Indeed, total CRA commitments increased by $1.63 trillion in 2004 alone, the first year of the Housing Bubble.
My published articles are archived at iSteve.com -- Steve Sailer
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27 comments:
Very interesting - you are quite right to emphasize that it is the enforcement of regulations that matters, not when they go onto the books.
Quant blogger Engram made a similar point wrt capital punishment:
http://engram-backtalk.blogspot.com/2007/01/population-trends-and-murder-rate-in.html
if you examine the passing of laws in England, Canada and Australia - you see no relationship between the legality of capital punishment and murder rates; but there is an inverse correlation between the occurence of actual *executions* and the murder rate - conisistent with a strong deterrent effect of capital punishment.
This is also seen in the US where executions were suspended for a few years:
http://engram-backtalk.blogspot.com/2006/12/let-evidence-influence-your-opinion-of.html
Amazing. I could not figure out the sum on your graph. Is that still a number? Or is it the distance to the next galaxy? I wonder though what all this money went for. And ultimately into who's pocket? Maybe the bankers had a snazzy system in place in which they would re-funnel the money back into their own pockets. It's an open secret that a lot of the so-called development aid in Africa ends up in the pockets of those who handed it out.
Bank have an economic incentive to merge: namely economies of scale with regards to systems.
Several commenters on a recent metafilter post on this subject made the claim that CRA loanees were no more likely to default than non-CRA ones. They don't post any numbers though so I wonder how true it is.
http://www.metafilter.com/79088/Prescient-Economist-Housing-Crash-Result-of-Government-Incentives
Steve, these are hate facts. Jeb Bush is not going to appreciate your tone. How are the Republicans going to win if they can't pander to the emerging hispanic majority?
Steve,
Thanks for another valuable perspective on the current financial crisis. The diversity angle is probably just as important as all the other explanations, i.e. perverse CEO incentives, deindustrialization, securitization systems, carry trade and many other dysfunctional financial sector idiosyncracies that we will now all pay the price for.
The New York Times is to “journalism” as Bernie Madoff is to “investing.”
A couple quick points:
The amount of cumulative CRA commitments is roughly similar to the amount by which the IMF now estimates the total losses on U.S. investments in the first stage of the credit crisis, which losses are almost entirely housing-backed loans.
On the other hand, the CRA commitments presumably include loans that the banks would have made anyway, under normal lending criteria, but which were included in CRA commitments to impress merger-approving regulators. On the other hand;
The CRA commitments presumably do not include bad loans due to generally loosened credit standards for everybody, non-minority as well as minority or inner city, in order to be consistent with looser loan standards applied for CRA purposes and, perhaps, prompted by low default costs in the early phase of the rise in housing prices.
The Fannie and Freddie actions in 2005 and 2006 were not, I think, additions to the CRA commitments, but rather actions that made the more extravagant CRA commitments of 2004 (and 2005 and 2006?) possible. The lending banks may have getting nervous about these new commitments and their dependence on ever-rising housing prices, so needed someplace beside increasingly wary investment banks to dump the riskier assets.
On bank incentive to expand and merge, there are not only scale economies, but econonomies of scope. The broader the markets a bank can tap for loans, the lower interest rates it can pay for a given sum of deposits. The broader the market a bank can tap for investment opportunities, the higher the rate it can earn on a given amount of investments.
the nation's economic justice trade association of 600 community associations
That's such a funny misuse of the word trade. They're making themselves sound like intellectual heirs of medieval guilds and industrial trade unions, not of beggars and malcontents.
How about CDO's? Were the banks encouraged to make these dodgy loans, because they knew that they could bundle them up, and sell them on(to unsuspecting European bankers)?
Off Topic? Not really:
A hilarious media dilemma has been hashed out in left wing newsrooms across the country over the past 24 hours. Should we cover the Muslim TV network owner's beheading of his wife in New York?
HAHAHAHAHAHA. Oh dear.
Key element of the story is that the perp was running a Muslim news network and was an ambassador for his community. Here is the liberal media verdict on whether or not this story deserves coverage...
CNN: IT'S NOT NEWS
CBS News: IT'S NOT NEWS
ABC News: IT'S NOT NEWS
USAToday: IT'S NOT NEWS
NY Daily News: IT'S NOT NEWS
New York Times: IT'S NOT NEWS
Amazing that left wing MSNBC seems to be the only big American news operation with a report.
Amazing that Google News has only one link to the story in the first three pages of results for the search term "beheading".
A general Google search shows only Canada.com, Buffalonews.com, and the MSNBC news link.
The slightly less liberal news outlets are covering it...
FoxNews: HUGE HEADLINE
Drudge: NEAR THE TOP OF THE PAGE
What a country!
If I were you Steve, I would watch out for the Fairness in Blogging act.
$800b was committed in 1998. According to wikipedia Bill Clinton was impeached on December 19, 1998. Also according to wiki the whole affair began in January 1998 during a press conference where Bill Clinton said "I did not have sexual relations with that woman."
My personal guess is that Clinton began using the CRA as a way to funnel money to Democratic interest groups in order to buy them off and get them to lobby their senator to not vote to convict. Some of these minority grievance organizations must have remembered that flush of banking commitments and suggested it to Dubya as a way to win the minority vote.
Amazingly none of the banks refused, protested or called their congressman, they just laid down and did what they were told to do. There were no angry press conferences, no editorials in the WSJ, and no public protest whatsoever. Either the bankers are all Democrats, they are all cowards, or they do not care about the bottom line more than 3 years in advance. Clearly the CRA wave had been building for a while, but it reached a then unheard of high while he was fighting to save his ass, and then dissipated after Clinton defeated the effort to impeach him. Then came Dubya.
Here are the numbers from the report:
1996 - $49.6b
1997 - $221.3b
1998 - $812.2b runup to impeachment
1999 - $103b
Maybe I am seeing something that is not really there.
Henry Canaday asks the important question: how many of these loans would have been made anyway without CRA?
To say the loans took advantage of CRA is not the same as to say they were CAUSED by the CRA.
To say the loans took advantage of CRA is not the same as to say they were CAUSED by the CRA.
Causation is a tricky subject but...
CRA forced banks to make these kinds of loans. There was then a market for reselling them b/c you could get CRA credit (ie. avoid punative action) that way.
Seems like causation to me.
Amazingly none of the banks refused, protested or called their congressman, they just laid down and did what they were told to do.
Why is that amazing? Like our government, the banks are run by people who have no interest in the long-term success of the operation. They just want to milk it for all it's worth and then move on.
Read H.-H. Hoppe's "Democracy: The God That Failed" or Paul Ewald on the evolution of virulence.
:Either the bankers are all Democrats, they are all cowards, or they do not care about the bottom line more than 3 years in advance.
As it happens, I'm watching an episode of The Beverly Hillbillies with my wife just now, and I can't imagine Milburn Drysdale throwing his money away on this nonsense. Commerce Bank was his baby; he was in it for the long haul.
Ben Tillman said...
Why is that amazing? Like our government, the banks are run by people who have no interest in the long-term success of the operation. They just want to milk it for all it's worth and then move on.
The politicians are giving the voters what they want. Essentially a large minority of the White vote has made an alliance with the coloreds in order to rule our country. Either these White voters are idiots, or they may see themselves as persecuted minorities. We conservative Whites are a minority in absolute terms, it's a wonder that we have ever slightly changed the direction of government.
But how much money actually got spent? These are all 10 year pledges, right? But even the 1998 pledges, did those really happen?
Also, there's the causality issue. Maybe the banks were awash in capital, knew that they had to make bad loans, and figured that they they might as well get political credit for it, too.
Steve, you may as well erase the blackboard and get ready to start over. Because this gravy train is just getting ready hit the afterburners in the new administration.
You forgot about the growing Democratic congressional control during the Bush administration, and the damping effect of the Gingrich congress on Clinton's natural economic exhuberance. Presidents are not all in all.
With Obama you have the President plus the Congress in hyper stimulatory mode, ready to spend the bank down and spin the printing presses. Nothing you have said on this subject will signify after just a short time with this red hot combo in office.
I'm starting to believe that the MSM may read this blog?
Today on Chris Mathews they had a segment where they told the public who was to blame for the mortgage meltdown. Of course "the ideology of de-regulation" and evil bankers were to blame, but someone decided they better "dismiss" any ideas about the Community Reinvestment Act having anything to do with it.
The "expert" explained how the CRA occurred too long ago to have any effect.
I think its only a matter of time before Steve and Vdare are shut down for hate-fact violations. Its now obvious that the media is 100% a tool of the elites to maintain power.
I give the Internet 2 years before censorship is implemented. By the end of the Obama administration the US will have "hate-speech" laws as well.
I give the Internet 2 years before censorship is implemented. By the end of the Obama administration the US will have "hate-speech" laws as well.
That would mean violence - literally. If the economy's getting better people might tolerate it, but I'm betting over10% unemployment for 2 more years, at least. There is nothing in the stimulus package to suggets a fix, and lot's (extended welfare benefits, etc.) to suggest incentives not to work. And we'll still have mass immigration.
Such sums do not and cannot exist.
If you printed out one hundred $100 bills per second 24/7, it would take the better part of 200 years to reach $57,000,000,000,000. (One estimate of the USA deficit)
It's just numbers on a screen representing nothing that could ever be real. It's absurdity.
I say the hell with it. Erase the screen, default, and if anyone squawks, nuke 'em.
China would be no worse off in reality (as opposed to on the screen). They would still have (most of) their physical assets, not even counting all the secrets they stole from our labs. We would have our physical assets. Just wipe the slate fresh and start over with what each nation physically has got right now, and we will all be just fine. Screw the greedheads who made insane bets.
CNN: IT'S NOT NEWS
CBS News: IT'S NOT NEWS
ABC News: IT'S NOT NEWS
USAToday: IT'S NOT NEWS
NY Daily News: IT'S NOT NEWS
New York Times: IT'S NOT NEWS
CNN and CBS both have it on their front pages. NBC, ABC, USAToday, and NYT don't have any search results for "behead" or "beheaded" relating to this story.
If your job is to show that Muslims aren't violent, misogynistic religious nuts, well, short of blowing up a building, beheading your wife is probably the worst thing you can do.
The housing bubble began in 1996. Take a look at the sales figures. I have been reading about it since 2001. In fact, despite collapsing prices and all the noise, the housing bubble continues. Look at the sales figures.
Mannfm11 please post the sales figures by year if you have them. I would like to see if the bubble is still going the way you say it is.
Nice theory. Too bad you're not talking about the real world.
Fed Governor Randall Kroszner -- no socialist, he -- gave a speech on December 3, 2008 (not too long ago) that completely eviscerated the argument that the CRA had anything to do with the subprime crisis. In the speech, Kroszner summarized the results of two new Federal Reserve studies of the CRA's role in the subprime crisis, both of which concluded that the CRA played virtually no role in the subprime crisis. The Fed studies offer the only empirical evidence on the CRA's role in the subprime crisis -- yet you've conveniently never mentioned either study, nor have you mentioned Kroszner's speech.
Here are the highlights of Kroszner's speech:
"[T]he findings of a recent analysis of mortgage-related data by Federal Reserve staff...runs counter to the charge that the CRA was at the root of, or otherwise contributed in any substantive way, to the current subprime crisis.
...
"Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas. ... This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis.
...
"We found that loans originated under the NWA program [a portfolio of CRA-covered loans] had a lower delinquency rate than subprime loans. Furthermore, the loans in the NWA affordable lending portfolio had a lower rate of foreclosure than prime loans. The result that the loans in the NWA portfolio performed better than subprime loans again casts doubt on the contention that the CRA has been a significant contributor to the subprime crisis.
...
"[F]oreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.
"Contrary to the assertions of critics, the evidence does not support the view that the CRA contributed in any substantial way to the crisis in the subprime mortgage market."
So there you have it: the evidence convincingly shows that you're wrong, and that the CRA had virtually nothing to do with the subprime crisis. I'm willing to believe that you simply didn't know about Kroszner's speech or the Fed studies, since you're clearly not an economist or a finance expert (and given how much you've written about the CRA recently, that's generous). But now you know -- that there's no evidence to support your theory, and that there's in fact substantial evidence rebutting your theory.
If you're as intellectually honest as you seem to believe, you'd at least address Kroszner's speech and the Fed studies. I'm not holding my breath though, since you've already made several misrepresentations about how the CRA works. For example, even for merger approvals, the CRA doesn't force banks to make any loans. Conservatives' desperate attempts to implicate the CRA in the subprime crisis are sad, actually. I honestly feel bad for CRA conspiracy theorists.
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