The Worst President Ever?
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I slogged through all ten pages of this debate, which went from a debate about how lousy a president Obama is (I’d agree he’s looking pretty poor at this stage in the game) to a debate about whether or not CRA played a role in the current crisis. I happen to side on the side that says it definitely played a role in the mortgage crisis. Even Gabe has moved from saying it had nothing to do with the crisis to it played a minor role in the crisis. Here’s some additional perspective from someone who played bank compliance auditor for a few years back in the 90’s when CRA got teeth.
You can say that CRA's role was small, but it's not the first time that a seemingly small step has ultimately resulted in significant unintended consequences. When CRA was strengthened, a veteran banker I respected told me right then that "...this POS legislation will cause a lending crisis. I'll bet my @ss on that." His rationale was simple. While the CRA did not specifically encourage poor lending practices, the end result would be just that. No, Gabe, CRA didn't intend to match deposit-taking and lending in certain neighborhoods. It's goal was to eliminate a practice known as red-lining (avoiding loans in certain neighborhoods). The domino effect was this: CRA was strengthened. Community groups used it as a weapon to prevent mergers. Bank examiners criticized banks who didn't lend enough in bad neighborhoods. Banks felt pressure to make more loans in bad neighborhoods. Banks complained to regulators that they were being pressured to make bad loans. Congress pressured Fannie and Freddie to buy more loans in bad neighborhoods. Fannie & Freddie started getting much more creative and liberal in their underwriting standards. Banks, seeing that they could (1) score CRA points and get green-lighted on M&A, etc., (2) sell these POS loans to Fannie and Freddie, (3) Get more servicing fees from the POS loans they sold to Freddie and Fannie, gladly joined in the racket. Non-banks, seeing another potentially lucrative, low-risk market opening up used repeal of Glass-Steagal to create derivatives to make POS loans and then remove the risk from their balance sheets, all while making a tidy profit. The result was history. I believe that CRA played a big role in the current mess we are slowly extricating ourselves from. It was the first domino in a disastrous chain of events. No question, there were other dominos that poured gasoline on the fire, but I can't see how CRA was not the match that started the fire. You give me a root cause and I'll bet money I can tie it back to CRA in some way, shape or form. We can argue the causal degree all day long, but I've not read anything yet that sways my belief that CRA gets the MVP in this mess. Without the strengthening of the CRA, there's a real possibility that Glass-Steagal doesn't get repealed. Cause and effect, law of unintended consequences, call it what you want, but CRA played a part, and in my opinion, a big part.[quote=Indyone] I slogged through all ten pages of this debate, which went from a debate about how lousy a president Obama is (I’d agree he’s looking pretty poor at this stage in the game) to a debate about whether or not CRA played a role in the current crisis. I happen to side on the side that says it definitely played a role in the mortgage crisis. Even Gabe has moved from saying it had nothing to do with the crisis to it played a minor role in the crisis. Here’s some additional perspective from someone who played bank compliance auditor for a few years back in the 90’s when CRA got teeth.
You can say that CRA’s role was small, but it’s not the first time that a seemingly small step has ultimately resulted in significant unintended consequences. When CRA was strengthened, a veteran banker I respected told me right then that “…this POS legislation will cause a lending crisis. I’ll bet my @ss on that.” His rationale was simple. While the CRA did not specifically encourage poor lending practices, the end result would be just that. No, Gabe, CRA didn’t intend to match deposit-taking and lending in certain neighborhoods. It’s goal was to eliminate a practice known as red-lining (avoiding loans in certain neighborhoods). The domino effect was this: CRA was strengthened. Community groups used it as a weapon to prevent mergers. Bank examiners criticized banks who didn’t lend enough in bad neighborhoods. Banks felt pressure to make more loans in bad neighborhoods. Banks complained to regulators that they were being pressured to make bad loans. Congress pressured Fannie and Freddie to buy more loans in bad neighborhoods. Fannie & Freddie started getting much more creative and liberal in their underwriting standards. Banks, seeing that they could (1) score CRA points and get green-lighted on M&A, etc., (2) sell these POS loans to Fannie and Freddie, (3) Get more servicing fees from the POS loans they sold to Freddie and Fannie, gladly joined in the racket. Non-banks, seeing another potentially lucrative, low-risk market opening up used repeal of Glass-Steagal to create derivatives to make POS loans and then remove the risk from their balance sheets, all while making a tidy profit. The result was history.
I believe that CRA played a big role in the current mess we are slowly extricating ourselves from. It was the first domino in a disastrous chain of events. No question, there were other dominos that poured gasoline on the fire, but I can’t see how CRA was not the match that started the fire. You give me a root cause and I’ll bet money I can tie it back to CRA in some way, shape or form. We can argue the causal degree all day long, but I’ve not read anything yet that sways my belief that CRA gets the MVP in this mess. Without the strengthening of the CRA, there’s a real possibility that Glass-Steagal doesn’t get repealed. Cause and effect, law of unintended consequences, call it what you want, but CRA played a part, and in my opinion, a big part.[/quote]
yep
great insight
(you are such a great writer)
classic govt meddling
liberal ideals gone wild with unintended consequences
jimmy the idiot carter
(carter also destroyed the nuke industry)
[quote=gabe] [quote=Primo]
And I have to try to keep my political preferences at bay.
[/quote]
dude. you are in such denial.
you make keith Oberlmen and ann coulter look objective.
your whining lib agenda oozes from every sentence you write
keep my political preferences at bay…stop, your killing me.
I’m just so excited that you have stayed to talk with us uneducated salesmen.
(BTW - as brilliant as you claim to be Mr Friedman, so far I truly am underinpressed with any of your uber-educated insights. Many of these semi-retarded salesmen have buried your arrogant little ass)
Shania,
you should be grateful. You get to tell the world you ‘work in finance’ but you don’t really need to know much about it, just sell, sell, sell. Same analytical requirement as working at the mall but much better payout!
Indy,
you are just telling me what you ‘believe’ but you provide no evidence.
I agree that the CRA is part of a general process from all parties that pushes, probably more than is convenient, for home ownership. Although if that’s your worry the tax treatment of mortgage interest is a much bigger issue. But nobody here has provided any data whatsoever supporting the idea that that led to lower underwriting standards. And that’s something that is easy to measure. Banks keep close track of what they charge and what the default rates are. If the risk/return balance is bad, where’s the evidence?
More importantly, neither you nor anyone else has provided much to support the idea that the CRA is behind the subprime crisis. You’d need to explain how a law from 1977 only managed to have an Impact 30 years later.
The reality is much simpler. The subprime crisis hit many different parts of the world at the same time. There’s a common cause. And it ain’t CRA.
Finally, this whole post started when Shania ignorantly revealed he has no clue that Democrats in the White House have a better economic track record than Republicans. (God bless his ignorant retail-selling heart! ) And that remains true, no matter what you think about the CRA.
Yes, the stock market performs better on average and so does the economy under Democratic presidents. However, there is a delay between when legislation is enacted and when it takes effect.
Someone said this before. Do you think that the recession of 2000-2002 was caused by George W. Bush (I have an Army buddy who thinks this)?
Do you think that Bill Clinton is responsible for the recovery in the early nineties?
The recovery then started WELL before Bill Clinton was elected.
As for CRA. You have only provided articles written by journalists or “experts” with associate’s degrees in political science. Like I said, I would have responded better to Krugman’s blog. The law in 1977 was strengthened in the nineties by Bill Clinton. We can provide just as many articles in response.
Seriously, look at Berkeley’s Economic Journal, or the Journal of Economics and Business, or the International Economic Journal. All of these will even have some of your sides papers. Only they are qualitative, not quantitative like the the papers that my side has written.
You are an analyst. I find it difficult to believe with your analyst’s training (CFA?) that you would post ANYTHING qualitative.
In addition, you should have a decent background in economics and my comment about how CRA caused the companies who had the ability to lend to make the bad loans should make sense to you.
I will try again.
Let’s assume for a minute that there are only two companies that lend money for mortgages.
Company A and Company B are doing about the same amount of business and have about the same amount of profit.
CRA is strengthened and both Company A and Company B are required to comply with CRA. Now, they don’t have to make the loans, but they could makes some money off of this if they use adjustable rates, interest-only loans and a number of others.
Now, there are four possible outcomes to this scenario.
1) Both companies decide that they will not participate in the sub-prime scheme and so no sub-prime loans are given. Thus, no bad loans get packaged and re-packaged and sold. (although how will they comply with certain provisions of CRA).
2) Company A decides it doesn’t want to take the chance that Company B will lend, so they start offering the loans. Company B does not and thus loses profit. Analysts downgrade them, so on and so forth.
3) Reversal of number 2.
4) Both companies, fearing the other will gain a competitive advantage, offer the sub-prime loans.
What is the Nash equilibrium in this case, gabe?
Obviously it is a lot more complicated than this, but this is the basic way it worked out.
Once the bad loans were made, they were repackaged and sold anew on an international scale, resulting in a global recession with the exception of a few stalwart countries.
wow great insight. not you bring nothing. I LOVE the mall. The mall makes me happy. I love just walking the mall and looking. My family and i spend a lot of time at the mall. I love the sports. I love the sports pages. Im in a fantasy league I love it.Indy,
you are just telling me what you ‘believe’ but you provide no evidence.
I agree that the CRA is part of a general process from all parties that pushes, probably more than is convenient, for home ownership. Although if that’s your worry the tax treatment of mortgage interest is a much bigger issue. But nobody here has provided any data whatsoever supporting the idea that that led to lower underwriting standards. And that’s something that is easy to measure. Banks keep close track of what they charge and what the default rates are. If the risk/return balance is bad, where’s the evidence?
More importantly, neither you nor anyone else has provided much to support the idea that the CRA is behind the subprime crisis. You’d need to explain how a law from 1977 only managed to have an Impact 30 years later.
The reality is much simpler. The subprime crisis hit many different parts of the world at the same time. There’s a common cause. And it ain’t CRA.
Finally, this whole post started when Shania ignorantly revealed he has no clue that Democrats in the White House have a better economic track record than Republicans. (God bless his ignorant retail-selling heart! ) And that remains true, no matter what you think about the CRA.
I love the NFL site. Sports make me happy.
They have this cool george jetson stand up electric mall rent a cop scooters here. That would be an awesome job. i envy themI’m a mall cop on the weekends. It’s so fullfilling
Gabe,
Its surprising you have so much time to waste with us. Especially with such trivial subjects. I would think you would be working on black holes or something.The Gallup poll released today finds President Barack Obama’s poll numbers at their lowest levels yet. An overall approval rating of 44%. According to the survey, "Overall, 44% of voters say they at least somewhat approve of the President’s performance. That’s the lowest level yet measured for this president.
He looked like an idiot on 60 minutes. desperate "fat cat bankers" brilliant he is toast,. done. gone. see ya 2010 mid terms gonna be fun. MONSTER GOP beat down a repub in NJ....tip of ice berg (like virginia) your done Gabe, my friend new sheriff back in town SOON. im thinking mitt? god bless free markets god bless supply side god bless ronnie USA saying NO to barakracy[quote=Shania Twain]The Gallup poll released today finds President Barack Obama’s poll numbers at their lowest levels yet. An overall approval rating of 44%. According to the survey, "Overall, 44% of voters say they at least somewhat approve of the President’s performance. That’s the lowest level yet measured for this president.
He looked like an idiot on 60 minutes. desperate "fat cat bankers" brilliant he is toast,. done. gone. see ya 2010 mid terms gonna be fun. MONSTER GOP beat down a repub in NJ....tip of ice berg (like virginia) your done Gabe, my friend new sheriff back in town SOON. im thinking mitt? god bless free markets god bless supply side god bless ronnie USA saying NO to barakracy[/quote]You sound like a Fox News hack.
Way too early to be making these kinds of predictions.
Reagan's approval ratings bottomed out below 40% in 1983 before the economy started turning around:
http://online.wsj.com/public/resources/documents/info-presapp0605-31.html
[quote=Indyone]I slogged through all ten pages of this debate…Cause and effect, law of unintended consequences, call it what you want, but CRA played a part, and in my opinion, a big part.[/quote]
I believe Watters vs. Wachovia Bank was a bigger contributor than CRA.
It said states could not intervene in sub-prime lending even when they knew it was predatory, and even when they knew an unsustainable bubble was building.
Federal government and federal policy trumped any states rights. Banking influence in Washington trumped common sense at the local level. It trumped the best interest of the American public.
What’s ironic is that Wachovia went to the supreme court to fight for the cause which would eventually bankrupt them.
dont change the subject nyc
get long
come from the dark side.
pull up a weekly on SPX
sept-oct 08 gap. 1250ish soon and quick
the force with u brother.
come on over.
LukeSkywalkerESBV3Wallpaper.jpg800×600
[quote=Indyone]I slogged through all ten pages of this
debate…Cause and effect, law of unintended consequences, call
it what you want, but CRA played a part, and in my opinion, a big
part.[/quote]
I believe Watters vs. Wachovia Bank was a bigger contributor than CRA.
It
said states could not intervene in sub-prime lending even when they
knew it was predatory, and even when they knew an unsustainable bubble
was building.
Federal government and federal policy trumped
any states rights. Banking influence in Washington trumped common sense
at the local level. It trumped the best interest of the American
public.
What’s ironic is that Wachovia went to the supreme court to fight for the cause which would eventually bankrupt them.
[quote=NYCTrader]
You sound like a Fox News hack.
[/quote]
independents expected bubba
moderation and middle of the road
same with frustrated GOP anti-iraq bush haters
this dude has gone way way way too left.
the damage is done.
plus sadly, usa has tons of closet racism
took a perfect storm for him to win
its over.
[quote=Still@jones][quote=Indyone]I slogged through all ten pages of this
debate…Cause and effect, law of unintended consequences, call
it what you want, but CRA played a part, and in my opinion, a big
part.[/quote]
I believe Watters vs. Wachovia Bank was a bigger contributor than CRA.
It
said states could not intervene in sub-prime lending even when they
knew it was predatory, and even when they knew an unsustainable bubble
was building.
Federal government and federal policy trumped
any states rights. Banking influence in Washington trumped common sense
at the local level. It trumped the best interest of the American
public.
What’s ironic is that Wachovia went to the supreme court to fight for the cause which would eventually bankrupt them.
[/quote]
An interesting theory and not without merit. Since I know only a little of the case, I’ll have to do some research before I form a response. Very interesting though.
[quote=gabe] [quote=B24] [quote=gabe]I’m a bit surprised to see so many here bash Democrats since the historical evidence is pretty strong that the economy does better under Dems. More importantly for this crowd, the stock market tends to do better as well. You can Google this yourself, but here’s one example of many: http://www.usatoday.com/money/perfi/columnist/krantz/2005-12-02-presidents_x.htm I guess there’s a reason why so many here make it clear that this is a sales, not an analytical job. [/quote]
It's not a direct correlation, though. Quite often, the economy is a lagging indicator of a previous administration. And sometimes, it is simply bad timing. For example, look at the last 30+ years. Carter(77-80), Reagan(81-84), Reagan(85-88), Bush(89-92), Clinton(93-96), Clinton(97-00), Bush(01-04), Bush(05-08), Obama (2009).
Carter was a disaster, Reagan inherited a big mess, Clinton was lucky that he presided over a relatively calm period of prosperity and a technological revolution, Bush II inherited a tech meltdown and walked into a jihad on our turf, and Obama was unfortunate to have inherited an economic meltdown. Now, I blame neither the current mess nor the tech wreck on the presidents that inherited them. One was a GOP, one was a Dem. To me, it is all about how you handle it. As much as I hate Obama, you can't blame the mess on him. It would have been there whether it was him or McCain. However, I also disagree on how he is handling it. But only time will tell. I just don't think you can tax and spend your way out of a recession. You need to light the flame of prosperity and ingenuity, not encourage social and economic welfare. Right now, we are just building some new roads and bridges. And the other 2/3 of the money is being wasted on stupid social programs and other government waste. [/quote]
I'm not claiming that Dem policies produced better results. We can let academics debate that. What I am saying is that the idea that Republicans are better for the economy is not supported by the empirical evidence.
And Carter was hardly a disaster. He basically started the deregulation of the economy (no, not Reagan check the books) and it was under him (again, not Reagan) that serious anti-inflationary efforts began.[/quote] I agree, the correlation is murky between presidents and stock market results. To go one step further, though, we could probably agree that higher tax rates rarely result in greater tax revenue. It is pretty much a historical fact. The reverse is actually true; lower tax rates have generally resulted in higher tax revenues. Now, it is difficult to make this correlation as well, because historically recent lower tax rates have *ironically* coincided with roaring bull markets, which would draw more tax revenues due to more cap gains, more corporate profits, more finance jobs, larger bonuses, more being spent in the economy......resulting in more jobs, etc. All resulting in greater tax revenues and lower (or non-existent) federal defecits, despite lower tax rates. But I am sure it is all just coincidental.