Conservative fantasies die hard, if they ever die at all. Most of us already knew that, but it’s been reaffirmed by online comments and e-mails from readers about this week’s Boomer With Attitude column re: Bank of America. I love it when conservatives try to put the blame for the 2008 financial crisis and America’s foreclosure tsunami on anyone — anyone — but the banks. The standard Fox-driven fairy tale is that Freddie Mac, Fannie Mae and federal housing policy are the ones responsible for that big, fat mess. That, er, version of reality has been repeatedly debunked by such inconvenient things as actual facts and studies, but that simply doesn’t matter to the right’s true believers.
I’ve heard the argument over and over: Congress forced Freddie and Fannie to make a ton of crappy loans in order to increase the number of poor people who owned homes. A piece by ThinkProgress reports that even New York’s Mayor Bloomberg got into the act the other day, defending banks against charges of having caused the economic meltdown, and placing the blame on — yep — Congress, Fannie and Freddie.
Now, Fannie and Freddie were to blame for some foreclosure messes, for sure, and I’m in no way defending their sorry work, but the vast bulk of the subprime loans that caused a huge bubble which eventually blew up in America’s face were made by private mortgage brokers. As ThinkProgress points out, a simple look at Federal Reserve data makes it clear. Note to Fox viewers and bank idolators: the following are what’s known as “facts.” We apologize for confusing you. The fact is that in a representative year of the housing bubble, 2006, more than 84 percent of the subprime mortgages were issued by private lending institutions. In addition, private firms made almost 83 percent of the subprime loans to low- and moderate-income borrowers in the same year.
ThinkProgress also notes that a huge majority of the high-cost loans were not covered at all by government laws that encourage home ownership, and “in fact, 94 percent of high-cost loans were totally unconnected from government homeownership laws.” Economists have repeatedly pointed out the fact — there’s that word again — Fannie and Freddie had “faded from the scene” during the zenith of the housing bubble. There are no illusions here that something as flimsy as real facts can unconstipate conservatives’ thinking, i.e. parroting, on this issue, but hey, we gave it a shot.
Photo credit: respres
This article appears in Nov 1-7, 2011.
Until you can get Fox News or Glenn Beck to say it, the right wing will not believe it.
Frankly you are totally incorrect in your assumptions. First you would need to go back to Congress where Barney Frank and Dodson who pushed for low income consumer to be allow to get a mortgage. Secondly, you would also need to research Freddie Mac and Fannie Mae who also pushed and supplied mortgages. Thirdly would be the banks, hedge fund and other investors. Has absolutely nothing to do with political parties except in regards to the federal govt.
Ahhh, nothing like the selective memory of a progressive and wanting to believe others have it as well. First Freddie the Fannie, then Fannie and Freddie kept going back to the govt with their palms up asking for financial help from around 2006 through 2010. Then several builders started having financials problems during the same period, then homeowners late 2008 started defaulting from their loans because of adjusted interest. You as a progressive may believe otherwise but some of us have amazing memories that we do wish at times that we did have your ability of selective memory.
What a simple minded article. Banks DO NOT want to foreclose. So why don’t we ask the question….why would a lending institution, that is in business to make money, EVER make a loan where the customer would not normally qualify? Do you seriously think a bank would just do this on their own? Hence we had the repeal of Glass-Stegall Act (under Clinton) and the Community Reinvestment Act (under Clinton). You can’t even have an intelligent discussion about the housing bubble if you do not mention these two. So you FAIL. You seriously need to take off the liberal goggles and educate yourself on the housing bubble. It started with Bill Clinton and continued with Bush. It is not a Dem or Rep issue….they both have blame. So your article, while amusing, is nothing more than MSNBC and Huffington Post garbage.
Mortgage brokers do not equal banks. I believe the Banks ARE culpable to the extent that they provided supply for the demand in RMBS, did let their underwriting standards fall “to market levels” and did a poor job managing the pools (loans, made to real people) of would be RMBS that they got stuck with when the music stopped. Even banks that held their standards got dinged when unemployment soared and “good” borrowers started to default.
But we are still not talking about WHY banks/brokers just suddenly started making these risky loans. The repeal of Glass-Stegall provided the gateway for bankers/brokers/Wall Street investors to make these subprime loans and created the ability for them to be SOLD (which is the key to this). The repeal also allowed unscrupulous brokers to just write loans that they knew people didn’t qualify for. The repeal of Glass Stegall Act provided the pathway and the incentive for these loans to be made. Once again I will say….you can not discuss the housing bubble if you do not discuss the repeal of Glass-Stegall.
Yeah…banks played their part in the meltdown, but all Grooms has to do is read “Reckless Endangerment” by New York Time’s Pulitzer prize winning business reporter Gretchen Morgenson or Paul Sperry’s “The Great American Bank Robbery” to realize that his argument is selective and deceitfully one-sided.
Banks could not have played their role had they not been enabled to do it by the very government watchdogs who instead of protecting the country’s economy became complicit in the crime. Yeah…those evil banks but what about Fannie Mae, HUD, the Federal Reserve, The Clinton Administration and Congress? Washington politicians sowed the seeds that grew the bitter plant and almost single-handedly created the moral hazard that led to calamity. Who should you despise more…the crook or the crooked cop behind him manipulating the system for private advantage?
So spare us the fallacious indignant attitude of trying to convince us you’re talking about conservatives when you’re really talking about fact averse liberals who will irrationally protect big government at all costs.
I repeat: “in fact, 94 percent of high-cost loans were totally unconnected from government home ownership laws.” What in hell is hard to understand about that? Talk about making up your facts as you go — once rightwingers get an idea in their head, it’s almost impossible for them to get it out, and they’ll twist facts all day long until they’re in knots in order make them fit their preconceived notions.
There are no illusions here that something as flimsy as real facts can unconstipate conservatives’ thinking, i.e. parroting, on this issue, but hey, we gave it a shot.
Wow, nice try, but apparently you have not done your homework. You need to go back several years if you want to write an educated article. Anyway, thanks for the laugh.
Banks weren’t keeping the loans, they were assembling them into MBS (Mortgage Backed Securities) and selling them off to pension funds and other fixed income investors. In many cases, they were only servicing these loans. Furthermore, while foreclosure isn’t ideal…in an environment where “houses never lose value”, banks could easily sell the house to cover any exposure. I agree it is not totally a Dem or Rep problem… Clinton screwed up by “encouraging” lenders to loan out to less qualified borrowers and Bush screwed up by kissing Wall St.’s ass when the banks were minting money off the garbage. The really funny part is how much criminal stuff probably occurred during this time…. but the banks will get off by paying a fine and admitting no wrong doing. However, if I sell one turd claiming it was a gold nugget, I would go straight to jail…. too much money in politics I guess
Grooms….what you are ignoring is why there were no “sub prime” mortgages before 1998. There was no such thing as what you call a “high cost mortgage” until it was enabled by the repeal of Glass Stegall and the Community Reinvestment Act. These decisions in the late 1990’s enabled the brokers and banks to SELL these mortgages. This created the sub prime market which was not possible before. Before that they were blocked from doing so because of regulations. You keep saying 94% of mortgages were not connected to government blah blah blah. That is true but you are not answering WHY. We are not saying the loans were government backed…but the government made it possible and cheered it on because home ownership was on the rise. Yes you are right the loans were not “connected to government” BUT because of the push for “everyone should own a home”, the repeal of Glass Stegall, and the Community Reinvestment Act it ENABLED private institutions to do this sort of lending and package and SELL the mortgages to investment institutions. Before 1998 they were barred from doing so. Do your research sir. Time magazine has done a lengthy investigation and it is very informative and is not biased for any political party.
It’s not the repeal of Glass Stegall that created subprime mortgages, or the invention of pooled risk participation. There has been a cycle in subprime lending such that every five to seven years it blows up, followed by tighter underwriting and less capacity, profits from good underwriting and scare capacity, capital attracted to profits, looser underwriting caused by more demand and greater capacity…repeat. The DEMAND for “AAA” paper yielding better than equivalent treasuries and/or corporates enabled this subprime cycle to last longer and build to a larger pop, but this is not a new phenomenon, it’s old hat. The piggy back loans and other smoke and mirrors were simply brokers trying to fill the demand in order to cash in. Have a pulse, get a loan.
Yes I agree but the repeal of Glass Stegall set the ground work for banks to mix commercial and investment activities and offer many more products/underwriting that they could not do before. It was not the sole reason for the bubble but it certainly laid the groundwork and made the “bigger than normal” bubble possible and add to that the US Government cheering on the notion that EVERYBODY should own a home set the stage for the horrible housing crisis we are in today. And the inexperienced Obama administration has done everything wrong which is causing the crisis to go on longer than it should.
Wow, what an sheep. you didn’t write this in a tent while you were snowed in did you? while there are many to blame, to say a bank would suddenly start making bad loans is very simplistic, who allowed them to sell the paper? did you not get that far?Barney Frank, Chris Dodd, these are champions for your cause?A better story for you to write would be on the change in labor markets and the rise of “contract” labor, the miss-classification of workers, better yet why this is being done. This is straight up the left’s ally, the cause and effect of all the “help” the government is giving us.
The repeal of the regulations is the cause? Then you must be thrilled that the Republicans are all consumed with getting rid of even more of those pesky regulations.
It makes no rational sense to argue that “in fact, 94 percent of high-cost loans were totally unconnected from government home ownership laws.” What? You’re arguing that an industry that customarily succeeded or failed by means of its ability to effectively manage risk instinctively by its own initiative suddenly threw reliable and secure lending practices to the wind…and government had nothing to do with it? The facts against this argument are incontrovertible. This is prima facie evidence of extreme denial if not mental derangement for the one making it.
Had not the shrill accusation of lending discrimination by banks in low-income urban areas erroneously culled from data required by the Home Mortgage Disclosure Act of 1991 and used as a bludgeon by groups like ACORN and La Raza then piled on by media, HUD, and a whole slew of liberal politicians pushing the legislative rubric of “affordable housing goals”…banks never would have adopted lax underwriting standards to include people whose finances fell far below traditional standards. Banks got the message from regulators…we’re going to give you a full anal exam if your HMDA data looks suspect and you don’t have enough minorities in your disclosure reports. Fannie Mae and other government sponsored enterprises under the leadership of public parasites like James A. Johnson and Franklin D. Raines went full bore with the new federal guidelines so the governor was off the engine and they pushed the market to follow and follow it did.
The FDIC safety net was originally limited to just commercial banks but it was amended after the S&L crisis by Christopher Dodd to also include investment banks and insurance companies…now ask yourself a question. Do you really think all these bank managers would have jettisoned proper caution in lending and acted so recklessly had they not known they had access to the FDIC’s emergency capital? Would they have relaxed underwriting standards so easily if they knew not to expect help in the face ongoing losses from faulty loans…or faced such an accusatory political gale…or could have so easily sold bad mortgages to Fannie Mae, et al? A rationally minded person intuitively knows the answer…No!
Banks were complicit in the meltdown but they DIDN’T cause it. Its causes remain permanently tethered to big government social engineers and the failure of Washington supervisors and regulators to exercise due diligence and oversight for their responsibilities. “What in hell is hard to understand about that?” I think it’s understood perfectly well by anybody who isn’t under the control of liberal headmasters.
“in fact, 94 percent of high-cost loans were totally unconnected from government home ownership laws.”
Can you explain this – it is about as vague as can possibly be yet you wield it like a club. I expect it has no relationship whatsoever as to whether Fannie Mae or Freddie Mac BOUGHT those 94% of loans from the primary lenders. They ARE the secondary market.
And ThinkProgress as a source – that alone is pretty funny, especially when you bad-mouth an actual news outlet in the same breath.
Repeal of Glass-Steagall, a law sponsored by Democrats and signed by a Democratic president in 1933, was accomplished by the Gramm-Leach-Bliley Act of 1999. Banks wanted it. Its title sponsors are Republicans. Democrats tried to block it because it would allow banks to expand into other businesses without being subject to the restrictions of the Community Reinvestment Act. A compromise was reached, and Clinton signed the law. If the mingling of commercial and investment activities was what caused the bubble and led to the subprime mess, blame should fall partly on Clinton and the Democrats for agreeing to it but mainly on banks that pushed for Gramm Leach Bliley and their Republican allies in Congress.