Ritholtz said...Dear Mr. Ritholtz:My bad -- I guess I am not clearly defining what I mean by "Data".
Allow me to present an example:
The Federal Reserve Board data shows that:
* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. These firms are not covered by the CRA
* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA.
Sources:
http://www.federalreserve.gov/pubs/bulletin/2007/articles/hmda/default.htm
and
http://www.fdic.gov/news/news/financial/1999/FIL9920a.html
amongst others
This is what I mean by data, from reputable sources, relating to the actual issue at hand.
My apologies for any prior confusion...
We are discussing whether or not "Diversity was a major factor in the mortgage meltdown." I realize you wish to confine the debate to the narrowest possible technical question of institutions officially covered by the Community Reinvestment Act. As you will recall, however, my invitation to you to debate me here rejected such a contrived and unenlighteningly narrow limitation of the topic. I wrote on Monday morning:
I would certainly debate him on the topic "Diversity was a major factor in the mortgage meltdown."
The causes are much bigger than the Community Redevelopment Act. I've always argued that George W. Bush's drive to add 5.5 million minority homeowners, as enunciated at the October 15, 2002 White House Conference on Increasing Minority Homeownership, by abolishing down payment requirements and by allowing "low doc" mortages (a.k.a., liar loans) was more directly responsible. But they are obviously both part of the same overall Diversity mindset.
Moreover, you should realize by now from reading those nine articles (you have read them by this point, haven't you?), you are drawing a legalistic distinction that didn't have a real world difference. Nonbank mortgage lenders not officially covered by the CRA, such as Angelo Mozilo's Countrywide, were told in no uncertain terms by the Clinton Administration that either they could start behaving like they were covered by the CRA or the CRA would be legislatively extended to them.
As Steve Malanga explained in the Spring 2009 City Journal:
"Pressuring nonbank lenders to make more loans to poor minorities didn’t stop … If it didn’t happen, Clinton officials warned, they’d seek to extend [Community Reinvestment Act] regulations to all mortgage makers. … To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown."
Both in order to maintain the favor of regulators, politicians, Fannie and Freddie, and the media, and because Mozilo appears to have been a true believer in the Diversity dogma and saw himself as sticking it to the old WASP finacial establishment by lending money to "underserved Americans" (as Connie Bruck's recent New Yorker article makes clear), Countrywide made pledges identical in form to the pledges made by CRA-covered institutions, such as Mozilo's $1 trillion (that's trillion with a T) promise on January 14, 2005. (See Countrywide's press release entitled Countrywide Expands Commitment to $1 Trillion in Home Loans to Minority and Lower-Income Borrowers.)
Once you've finished reading my nine articles, Mr. Ritholtz, so that you are up to speed enough to carry on a sophisticated discussion of "Diversity was a major factor in the mortgage meltdown," please come back. I look forward to carrying on a well-informed discussion.
My published articles are archived at iSteve.com -- Steve Sailer
Posts
31 comments:
That's right you tell 'em Steve
I predict that Ritholtz will call you a racist in 3...2...1....
Racist: someone who is winning an argument with a liberal (and yes, Ritholtz may be a neo-liberal like Reich, but he is extremely liberal on h-bd -- and that's what matters here).
You mentioned Fannie and Freddie-- good. Don't lose track of them. They weren't formally covered by CRA but they were creatures of government (well, of rent-seeking) and promised Congress and Executive officials that they would "lend" (disburse) vast sums of money to unqualified minority borrowers for political reasons. F&F supplied much of the capital banks and other mortgage lenders used to write loans. Mortgage originator's earnings were basically the fees they charged for brokering loans to F & F. Naturally mortgage originators wrote the ("diverse") loans F & F wanted to buy whether said originators were CRA-covered banks or not.
Oh Snap!
Steve: You may not have to redefine the question being debated. Mr. Ritholtz posed the question “Is the CRA significantly to blame for the credit crisis?” He is taking this to mean "institutions officially covered by the CRA." But, as you point out, even institutions not formally covered by the CRA were affected by the CRA. Therefore, it is reasonable to blame the losses of those institutions not formally covered by the CRA on the CRA.
It is Mr. Ritholtz who wants to change the question he originally proposed, not you.
From an article by Jon Entine on social investment:
"History of a meltdown
This crisis is a classic case of misplaced good intentions. The mutant seeds were planted during the Carter administration of the late 1970s. Mortgage lenders faced charges of racism and “redlining” because minorities were being denied mortgages at a higher rate than whites. Congress passed the Community Reinvestment Act (CRA), which gave regulators the power to punish banks that failed to address the “credit needs” of “low income, minority and distressed neighbourhoods”. The Federal Reserve Bank of Boston even went so far as to advise mortgage lenders to drop prudent lending safeguards to promote home ownership. “Lack of credit history should not be seen as a negative factor,” the guidelines instructed. Even welfare payments and unemployment benefits were to be counted as “valid income sources” to qualify for a mortgage – when documents were required at all.
The movement accelerated in the early years of the Clinton administration in the 1990s, which was publicly committed to spurring home ownership among minorities. Mortgage lenders faced political pressure to lower lending standards. Having traditionally required between 10% and 20% as a deposit on a new home, mortgage lenders began offering loans with deposit requirements of under 5%, and eventually with no deposit requirement at all.
Between 1995 and 1997, Congress tweaked the CRA, establishing a rating system that looked at how aggressively banks lent in low-income neighbourhoods. Because banks needed a good CRA rating to get regulators to sign off on mergers, expansions and even new branch openings, loans to low income families, many with questionable financial situations, soared. These “reforms” fuelled a boom in business at Fannie and Freddie, which exploited their quasi-government role to circumvent the rules regulating privately owned lenders.
In 1997, Bear Stearns became the first company to securitise a CRA-backed subprime loan, which was immediately guaranteed by Freddie Mac and given an AAA rating. The financial sausage was overcooked, a huge success, and no wonder.
Republican fold by helping them become homeowners, the Bush administration engineered passage of the American Dream Downpayment Act, which opened the door to buying a house for those with little savings or equity.
According to Harvard’s Joint Centre for Housing Studies, black and Hispanic borrowers accounted for 49% of the increase in homeowners from 1995 to 2005. But the study also showed that low income Americans were far more likely to leverage the American Dream with subprime loans issued on the basis of little or no documentation – now dubbed “liar loans”.
With markets booming, money sloshed through the system – tens of trillions of dollars – and the GSEs, as public traded companies, were under pressure to get their share of the pie. By 2005, with political pressure to lower standards coming from Democrats and some Republicans, regulators sharply increased Fannie’s affordable-housing goals once again. Over the next two years, it bought or guaranteed more than three times as many mortgages as it had in all of the previous years combined, according to company filings. Whenever competitors or worried economists asked Congress to rein in the GSEs, lawmakers were besieged with letters and calls from angry constituents keen to keep the money flowing – and Congress invariably complied. When the government rescued them, Fannie and Freddie owned or guaranteed almost half of the $12tn in outstanding mortgages. About 7% of these mortgages are classed as subprime.
Let’s be clear here: throughout the Clinton and Bush administrations, what social investors now call “predatory lending” was consistently being praised by activists, left and right, as innovative and necessarily “flexible” loan products to help minorities lift themselves into the middle class."
http://www.ethicalcorp.com/content.asp?ContentID=6159
Damn Steve- you are really feeling it this week. Take no prisoners. Ricci may be your breakthrough moment. You remind me of a young Courtney Cox being pulled on stage by Bruce during Dancing in the Dark.
When are you going to solicit questions from your readers and answer them once a week?
That's my first question btw.
Nice pwnage - and necessary. I've heard the "it wasn't the CRA" meme tossed around a lot over the past nine months by the usual suspects. And, of course, repeated by pliant media.
As a wise Latina said to me, "Steve Sailer is en fuego these days!"
Don't forget Hussein Obama's personal role in all of this [with Acorn & Buycks-Roberson v. Citibank]...
O'S DANGEROUS PALS
By STANLEY KURTZ
Posted: 3:53 am; September 29, 2008
nypost.com
Any bank that wants to expand or merge with another has to show it has complied with CRA - and approval can be held up by complaints filed by groups like ACORN.
In fact, intimidation tactics, public charges of racism and threats to use CRA to block business expansion have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America's financial institutions...
ONE key pioneer of ACORN's subprime-loan shakedown racket was Madeline Talbott - an activist with extensive ties to Barack Obama...
In February 1990, Illinois regulators held what was believed to be the first-ever state hearing to consider blocking a thrift merger for lack of compliance with CRA. The challenge was filed by ACORN, led by Talbott. Officials of Bell Federal Savings and Loan Association, her target, complained that ACORN pressure was undermining its ability to meet strict financial requirements it was obligated to uphold and protested being boxed into an "affirmative-action lending policy." The following years saw Talbott featured in dozens of news stories about pressuring banks into higher-risk minority loans.
IN April 1992, Talbott filed an other precedent-setting com plaint using the "community support requirements" of the 1989 savings-and-loan bailout, this time against Avondale Federal Bank for Savings. Within a month, Chicago ACORN had organized its first "bank fair" at Malcolm X College and found 16 Chicago-area financial institutions willing to participate.
By September 1992, The Chicago Tribune was describing Talbott's program as "affirmative-action lending" and ACORN was issuing fact sheets bragging about relaxations of credit standards that it had won on behalf of minorities...
In those years, he also conducted leadership-training seminars for ACORN's up-and-coming organizers. That is, Obama was training the army of ACORN organizers who participated in Madeline Talbott's drive against Chicago's banks.
More than that, Obama was funding them. As he rose to a leadership role at Chicago's Woods Fund, he became the most powerful voice on the foundation's board for supporting ACORN and other community organizers. In 1995, the Woods Fund substantially expanded its funding of community organizers - and Obama chaired the committee that urged and managed the shift...
UPDATED: Obama Sued Citibank Under CRA to Force it to Make Bad Loans
Posted on 03 October 2008
mediacircus.com
In these lawsuits, ACORN makes a bogus claim of Redlining (denying poor people loans because of their ethnic heritage). They protest and get the local media to raise a big stink. This stink means that the bank faces thousands of people closing their accounts and get local politicians to lobby to stop the bank from doing some future business, expansions and mergers. If the bank goes to court, they will win, but the damage is already done because who is going to launch a big campaign to get the bank’s reputation back?
Atlas Shrugs: Obama Sued Citibank Under CRA to Force it to Make Bad Loans
Monday, October 13, 2008
atlasshrugs2000.typepad.com
How The Democrats Caused The Financial Crisis: Starring Bill Clinton's HUD Secretary Andrew Cuomo And Barack Obama; With Special Guest Appearances By Bill Clinton And Jimmy Carter
youtube.com
Explosive Video, Fannie Mae CEO calling Obama and the Dems the "Family" and "Conscience" of Fannie Mae
youtube.com
Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis
youtube.com
ACORN Rent-A-Mob Thugs to Harass Lenders in 14 Cities Tuesday
By Matthew Vadum on 6.29.09 @ 11:05PM
spectator.org
ACORN, which played a starring role in creating the subprime mortgage crisis, plans to add insult to injury by harassing lenders across the nation with protests tomorrow in an effort to coerce them into supporting President Obama's Making Home Affordable foreclosure-avoidance program.
Austin King, director of ACORN Financial Justice, sent out a press release today advising of the demonstrations that are planned as part of its "Homewrecker 4" campaign. The four financial companies targeted are Goldman Sachs, HomEq Servicing, American Home Mortgage, and OneWest. Read the whole document here...
ACORN Home Defenders to Confront "Home Wrecker 4" in 14 Cities
Will Demand Participation in Obama's Foreclosure Prevention Program from Goldman Sachs' Litton, Barclay's HomEq, American Home Mortgage, and OneWest
press-advisory_home-wrecker-4_national1.pdf
ACORN Rent-A-Mob Thugs to Harass Lenders in 14 Cities Tuesday
6/30/2009
lucianne.com
I don't know Steve, I think Mr. Ritholtz is out-bitching you.
Let the classic fallback position begin (i.e, calling Steve names)!
Prediction: He will NOT engage you on the terms you originally laid out (and just laid him out, or so it appears).
However, in that case you should demand that he admit that your case is solid in so far as you've defined the issue.
Admittedly this report talks about events about to happen rather than the recorded and documented past. Just assume, though, that the quoted predictions will come true - "what's the "race-realist" interpretation going to be? That Japanese finance surely must be in the hands of admirably intelligent, yet evil Jews?
The paleo-conservative shtic is that economics must be about race rather than class, because everything is - no exception allowed."
If the definition of "race realist" is "one who ascribes all effects to racial causes" then above is correct. But I see a common thread in the Japan story and our issues of politically motivated lowering of lending standards. The race realist might simply point out that's a bad idea, and note that the lowering here was very racially motivated, which isn't a race realist assertion, but a proud claim of the pols who insisted on lowering the standards.
More than anything, I think this is testament to how stupid "diversity" shibboleths cause one to be. Pwning some journalist hack is one thing, but Ritholtz is nobody's fool. For that matter, neither is Ginsburg.
The vapidity of their arguments is telling. It also explains why Watson (and Summers) were so quickly and thoroughly piled-on: roll out the ad hominem from all corners and get a quick recanting before anyone can even inquire as to the facts. Smear anyone that brings up the facts as a hater and fabricator (irony is the gods letting us know what's true).
"More than anything, I think this is testament to how stupid 'diversity' shibboleths cause one to be"
I totally agree. Fundamentally, Ritholtz is arguing against a strawman. And yet he is completely unaware of it as far as I can tell.
Because if he were aware of it, then he would either agree to debate the issue as Steve framed it or at least explicitly state that he is not interested in debating that issue.
It seems to me that once you accept the lie of HBD-denialism into your mind, it infects and corrupts all of your thinking on any related issue. My guess is that's what happened with Ritholtz.
@regular joe:
That is an answer one can actually discuss. The other reaction to my Japan analogy from am anonymous commenter - that things are just due to demographic decline - is just plain nonsense, though (because Japanese tend, on average, to live on quite a few less square feet than people from other countries I have data for. It's definitely not a demand issue in the demographic sense - if they could afford it, the Japanese would immediately exchange their often cramped quarters for more space.)
The point I wanted to get at - and that I could also try to underscore by pointing out the housing bubbles in Spain, Ireland and Eastern Europe - is that it's one thing to argue against affirmative action or in support of immigration restriction (the latter is often supported by many immigrants themselves, e.g), but it is quite another thing to dole out blame for the economic crisis on the basis of racial attributions in the context of housing.
It' s also a guarantee for permanent political minority status of conservatism. When German conservatism dominated German society post-WWII, its leading economic theorists promised a house of their own to every worker. They didn't implicitly expect to require a certain average IQ level. The "race-realist" concept of IQ-based rationing has it all backwards, as increasing overall economic productivity implies that positional goods like McMansions should be subject to market-based rationing - not standard housing, which ought to be much more affordable in the US than in other, more densely populated countries in the world, but apparently right now isn't.
There is something in the water out east, there is no other explanation...
Fwiw, there is alot of, politically, pushme-pullyu. Besides our poor, helpless representatives being bribed to advance beneficial legislation and ward off harmful by business and special interests, because they need the campaign dough, there is alot of regulatory and tax code being wielded as extortionary weaponry to extract campaign funds, favors and personal gain by our right honorable Con-(gress)men
and lawmaking agency staffers.
In that vein, amongst all the maniacal bad lending before the music stopped...auto, home, commercial property, student, revolving credit, vendor financing, equipment leasing, etc...govt home affordability programs mandated bad lending and were given enforcement teeth in the form of meaningful penalties and fines. Do it or else, which also served to curry favor with certain do-gooder constituencies.
Iow, pushme, basically the iSteve and Carney/Clusterstock position.
In the pullyu camp, evil greedy financial institutions bribed their way into lax and further relaxed lending regulations and requirements to keep profitably dancing ever more feverishly as the music played. Basically TBP
(the big picture) camp.
Pushme-pullyu, both true. Assigning percentage culpability to the right of the decimal point for any of it is a hopeless endeavor. Ratings agencies, leverage, govt programs, recklessness and greed, trendy zeitgeist all contributed.
He says they were all pushed, she says they were all pulled, meanwhile the politicians scramble to get out in front of the entire mob in the blind alley, innocent bystanders to a man (and woman) if asked, fingers of blame pointing everywhere but the mirror (anger, denial, bargaining) Seventy six trombones...
I've read iSteve for about a decade, TBP a couple years. Known by the company one keeps we'll leave the iSteve commentariat aside. Over at the TBP a clearly left of center group has gathered, for whatever reason. The wager-on-offer high profile proprietor is more evenhanded, willing and able to deliver roundhouses to perceived miscreants of any and all identities and affinities.
I would just note the irony of the gathered crowd there, advocates of all things tolerant, defenders of all things minority, happily attacking any outsider in their midst, picking off any straggler from the herd like hyenas and jackals. CRA as even a camel's back straw much more a gateway drug is clearly a minority view amongst the tolerant, a straggler from majority opinion.
Both camps at this point are solidly cemented into very public positions and unable to ever cede much ground. Both want solutions to preclude recurrence of the path
through S&Ls and LatAm debt crises and Asian Contagions, all of which share more in similarity than difference regarding range of culpabilities, a loopy Groundhog's Day nightmare. Good luck with that, babies and bathwaters and samesuch. Economics, more rival sects of faith-based obscurantism than an Enlightenment science, is of no help.
With greed and ego and aggressive competition and fame and fortune and recognition and legacy, which part of the cycle is wished to be eradicated. The part where Jonas Salk's rushed, government backed endeavor resulted in mismanufactured live polio vaccine being injected into hapless victims or the part where legions are _not_ present day walking around with ambulatory appliances. Yes Virginia, omelettes involve breaking eggs
including everyone's nearest and dearest. No real loss, when examined for content one usually discovers a weasel has been there first.
Mr Sailer:
While Mr Ritholtz is correct that non-bank financial institutions are not subject to CRA, it's wrong to suggest that therefore these institutions would not want to make CRA loans.
Many of the non-bank financial institutions that make mortgage loans do so with the full intent of selling these loans on to banks or Fannie/Freddie.
In fact, when I worked at Fannie Mae, we often had to pay a significant premium for CRA-qualifying loans or goal loans (http://www.huduser.org/publications/polleg/gse.html).
Lots of smaller, non-bank institutions would make and hold these loans knowing that Fannie and Freddie would need to buy them at year-end to meet their goals. They would not otherwise have made these loans.
I think your data is already overwhelming. But it's worth noting that mortgages made by non-bank institutions are generally sold to banks or GSEs (after all these institutions did the securitization). The non-bank institutions were only making loans that banks would buy and banks had to buy CRA loans. In many cases that I am aware of, non-bank institutions could get a premium for making CRA loans and selling them to banks before their CRA exams.
Thank you,
CVD
Jon Entine, as quoted by Josh Stein:
Let’s be clear here: throughout the Clinton and Bush administrations, what social investors now call “predatory lending” was consistently being praised by activists, left and right, as innovative and necessarily “flexible” loan products to help minorities lift themselves into the middle class."
http://www.ethicalcorp.com/content.asp?ContentID=6159
As long as we're trying to be clear here, it would be more clear to admit that blacks and latinos did not lift themselves, but a different even more privileged minority (more taboo to identify or implicate) played an outsized role in the innovative activism that got "markets booming, money sloshed through the system – tens of trillions of dollars" (Entine again) as well as the innovative profiteering that activism exacerbated.
BTW, Barry Ritholtz's book "Bailout Nation" is required reading for anybody wishing to understand the sequence of events that constitute the current economic crisis.
I am not really interested in getting deeply involved in the economic disputes. My own take on them is informed by sociological systems theory and cognitive psychology. Suffice it to say that Steve's effort to find an alternative underlying cause for outcomes that are effects of economic cycles basically fails the "Occam's razor" test as much as the rationalizations affirmative action supporters come up with.
Since I am more inclined to think and write about how to "de-obscurify" economics than deal with ethnic issues, I can only conclude by recommending not to exaggerate the importance of the CRA etc. A fight over affirmative action can be won on account of the basic principles at issue. Attitudes towards immigration might once more become similar to those that made Abernethy protest at the Mexican border (though I am less sure about this than about the reversibility of affirmative action laws. Still, it should be noticed that the number of deported illegals has sharply increased in recent months. Assuming further economic deterioration, there is guaranteed to be a very substantial reduction of immigration. The only way around that would be tighter integration between the US and Mexico along the lines of the EU model, which would be a game changer in several respects.) Denying the culpability of Wall Street for most of the current carnage, however, is an intellectually and politically hopeless endeavour.
This debate is basically going to continue as it has thus far. Steve will post evidence supporting his thesis "Diversity was a major factor in the mortgage meltdown," Ritholtz will keep talking about some other debate topic and will keep ignoring Steve's evidence, and finally, he'll declare victory and give up, telling all of his sycophants that he "pwn3d Steve Sailer."
Steve, assuredly, knows all of this, but is using the 'debate' as a platform to expand the Steveosphere, which I whole-heartedly support.
Peter,
I think it matters if one considers "race realism" to be playing offence or defense. If offence, if realists are trying to make race the unifying field theory of social science, as indeed some here seem to (one guy once proclaimed in comments that most war and conflict is caused by racial IQ disparity...er..Germany & France?), then you point is well taken.
Indeed, bubbles happen for many reasons, as i believe Steve said in the first of his article series on this.
But, if realists are playing defense, if they merely want the question "what created our American housing bubble/ default problem" answered without censorship of racial angles, then your point is less valid. One can concede that there are factors (excess capital looking for a place to be invested say) that made housing bubbles likely/ possible globally, manifested by ones in the countries you named. But, it still could be that in the USA, without the contributing factor of racial motivations, our traditional credit standards would not have been loosened enough to create a bubble this large, or the popping wouldn't be as bad (whites and NAMS default on equal loans unequally). After all, the record does show some efforts to slash standards were very explicitly racial here, even if they may not have been large enough to have significant effects, or even if Japan's slashed standards had other motivations.
So your points about Japan, Spain, Ireland etc don't necessarily contradict the limited, qualified claim Steve is making that in the USA, racial politics played a large role in inflating and badly popping our housing/ default bubble. Steve may be wrong, but your points alone don't vitiate his.
ritholtz, BTW, made no more mention of the debate in his blog.
and he is right. he is proving his SWPL credentials to the MSM by fighting evil AND avoiding giving the evil forces media exposure by citing the prince of darkness in his blog.
It' s also a guarantee for permanent political minority status of conservatism.
Not unless and until white folk become permanent minorities.
Silence or name calling, either way it's a concession.
"As long as we're trying to be clear here, it would be more clear to admit that blacks and latinos did not lift themselves, but a different even more privileged minority (more taboo to identify or implicate)"
Don't be so coy. Spit it out: You're talking about Irish Americans like Kerry Killinger at WAMU or Italian Americans like Angelo Mozillo at Countrywide, right?
Don't be so coy. Spit it out: You're talking about Irish Americans like Kerry Killinger at WAMU or Italian Americans like Angelo Mozillo at Countrywide, right?
You're the one being coy. It isn't taboo to identify or implicate Irish or Italians for their wrongdoing.
Fred: Italian Americans like Angelo Mozillo at Countrywide
Or David Loeb.
Seriously, you do NOT want to play this game on the Supply Side of the equation.
I'll spot you the Demand Side: Carter's CRA, the Boston Fed's bogus 1992 study, Reno's anti-redlining initiative, Andrew Cuomo's meddling at HUD, the Bush/Rove homeownership initiative, etc etc etc.
But you do NOT want to attempt to defend the Supply Side.
Trust me on that.
The Great Divide, regarding Mozilo:
In Virginia Beach, the local club where businesspeople congregated refused to admit him, and in Orlando he had trouble selling mortgages until he met a group of Jewish homebuilders who couldn’t get financing. As his sister, Lori, told me, “Angelo said, ‘Nobody wants to work with you. Nobody wants to work with me. Let’s do it together.'
But Countrywide didn't go crazy until after Loeb died and Mozilo succeeded to supreme power.
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