Fundamental Differences

[Fallakin Kuvari]

I find it telling that you didn't even bother to discuss the GLB act.

PDF of the case in question.

[Lurker]

Because the "mandate" you were talking about was the CRA, and that was your main point. Are you backing off that claim now?

[Fallakin Kuvari]

You must really have some problems with reading comprehension.

[Lurker]

Heh.

Ok. Can you explain how Gramm-Leach-Bliley interacted with the Community Reinvestment Act to enable the subprime crisis?

Also explain how CRA covered banks drove the subprime crisis when they account for only 20% of the subprime loans, issued them at a much lower frequency than the rest of the industry, and were twice as likely to retain ownership of those loans (meaning they weren't the super risky no good underwriting bundle them and sell them as fast as possible kind)?

edit: And Fallakin linked to the case that was discussed here in October of 2008; the discussion that highlighted his racist tendencies. It wasn't about lowering lending standards, it was about making sure they were enforced equally so that if someone qualified for a loan they weren't refused just because the property was in a minority area.

[Harlowe]

One of them seems to be that wingnuts can get burned with disinformation from the same sources over and over and over, and they keep going back for more expecting a different result

Like from the Drudge Report for instance....recently it was "Hamgate"!

[Lurker]

Hamgate in conjunction with the Gramm Leach Bliley Act caused the subprime crisis. That's what I heard anyways. I didn't verify it.

[Lurker]

Fallakin, did you rethink your position on the CRA? Have you learned not to trust a word Beck, Hannity, or the wingnut blogs tell you, yet? If not, what would it take?

The poisoning of a young mind, Fox News style.

Hannity - Feb 19, 2009

HANNITY: No, I'm going to tell you what got us into this mess was this redistribution, that you live in America -- wait a minute. The banks were forced to make risky loans because government made them.

GALLAGHER: That's right. By law.

HANNITY: By law.

DANZA: That's what it was. That's what it was.

(CROSSTALK)

GALLAGHER: The Democrats -- Democrats insisted that they -- and they had these banks hamstrung said, "You're going to give loans and give that money away."

DANZA: Yes, they told them go out there."

(CROSSTALK)

HANNITY: The community reinvestment act.

Glenn Beck - May 28, 2009

Meanwhile, the Center for Community Change has several union members on its board and lists on its Web site that it helped establish the Community Reinvestment Act. Wait a minute. That's the one that got us in all the trouble with the banks, you remember, causing the financial mess that we're in right now.

So, you might consider leaving that one off your resume. Maybe it's just me. You should take that one off, you know, your Web site.

Glenn Beck - June 18, 2009

BECK: We all have to have a home. This, what -- between the Community Reinvestment Act and Fannie and Freddie, death to America.

And there are dozens more going back years. Fox News pushes this particular lie hard. This stuff would be funny in a World Wrestling Entertainment kind of way if there weren't so many lemmings believing it, eating it up, and vomiting it out.

[Fallakin Kuvari]

http://online.wsj.com/article/SB123665023774979341.html

President Barack Obama argued on the campaign trail that one bill -- the Gramm-Leach-Bliley Act of 1999 -- led to deregulation that helped cause the crisis. Among other things, that law allowed for the creation of giant financial supermarkets that could own investment banks, commercial banks and insurance firms, something banned since the Great Depression. Its passage, critics say, cleared the way for companies that were too big and intertwined to fail.

Surely not CRA as it was originally intended, but the changes made in the 90's in conjunction with the Gramm Leach Bliley Act (GLB) had a part to play in it.

Learn to read yet?

[Lurker]

Cut and paste time, since I hate wasting time rephrasing questions when they aren't answered.

Remember, you said the Government mandated the risky loans. GLB isn't a mandate, it's a deregulation. You thought CRA was the mandate when it isn't. You thought CRA was responsible when it wasn't. You also thought the citibank lawsuit about redlining was responsible even though you learned last year that it wasn't.

=====

Can you explain how Gramm-Leach-Bliley interacted with the Community Reinvestment Act to enable the subprime crisis?

Also explain how CRA covered banks drove the subprime crisis when they account for only 20% of the subprime loans, issued them at a much lower frequency than the rest of the industry, and were twice as likely to retain ownership of those loans (meaning they weren't the super risky no good underwriting bundle them and sell them as fast as possible kind)?

[Fallakin Kuvari]

Legislative changes 1999

In 1999 the Congress enacted and President Clinton signed into law the Gramm-Leach-Bliley Act, also known as the "Financial Services Modernization Act". This law repealed the part of the Glass-Steagall Act that had prohibited a bank from offering a full range of investment, commercial banking, and insurance services since its enactment in 1933. A similar bill was introduced in 1998 by Senator Phil Gramm but it was unable to complete the legislative process into law. Resistance to enacting the 1998 bill, as well as the subsequent 1999 bill, centered around the legislation's language which would expand the types of banking institutions of the time into other areas of service but would not be subject to CRA compliance in order to do so. The Senator also demanded full disclosure of any financial "deals" which community groups had with banks, accusing such groups of "extortion".[57]

In the fall of 1999, Senators Christopher Dodd and Charles E. Schumer prevented another impasse by securing a compromise between Sen. Gramm and the Clinton Administration by agreeing to amend the "Federal Deposit Insurance Act" (12 U.S.C. ch.16) to allow banks to merge or expand into other types of financial institutions. The new Gramm-Leach-Bliley Act's FDIC related provisions, along with the addition of sub-section § 2903(c) directly to Title 12, insured any bank holding institution wishing to be re-designated as a financial holding institution by the Board of Governors of the Federal Reserve System would also have to follow Community Reinvestment Act compliance guidelines before any merger or expansion could take effect.[58]

At the same time the G-L-B Act's changes to the "Federal Deposit Insurance Act" would now allow for bank expansions into new lines of business, non-affiliated groups entering into agreements with these bank or financial institutions would also have to be reported as outlined under the newly added section to Title 12, § 1831y. (CRA Sunshine Requirements), satisfying Sen. Gramm's concerns.[59][60]

In conjunction with the above "Gramm-Leach-Bliley Act" changes, smaller banks would be reviewed less frequently for CRA compliance by the addition of §2908. (Small Bank Regulatory Relief) directly to Chapter 30, (the existing CRA laws), itself. The 1999 Act also mandated two studies to be conducted in connection with the "Community Reinvestment Act": [61]

* the first report by the Federal Reserve, to be delivered to Congress by March 15, 2000, is a comprehensive study of CRA to focus on default and delinquency rates, and the profitability of loans made in connection with CRA; [62]
* the second report to be conducted by the Treasury Department over the next two years, is intended to determine the impact of the Act on the provision of services to low- and moderate-income neighborhoods and people, as intended by CRA.[63]

On signing the "Gramm-Leach-Bliley Act", President Clinton said that it, "establishes the principles that, as we expand the powers of banks, we will expand the reach of the [Community Reinvestment] Act".[64]

GLB repealed part of the Glass Steagall Act from 1933, as the last quote states.

The argument for preserving Glass-Steagall (as written in 1987):

1. Conflicts of interest characterize the granting of credit — lending — and the use of credit — investing — by the same entity, which led to abuses that originally produced the Act.

2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).

The argument against preserving the Act (as written in 1987):

1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.

2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.

3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them -- by diversification.

4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation.[7]

Financial events following the repeal

The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.[15] Elizabeth Warren,[16] co-author of All Your Worth: The Ultimate Lifetime Money Plan (Free Press, 2005) (ISBN 0-7432-6987-X) and one of the five outside experts who constitute the Congressional Oversight Panel of the Troubled Asset Relief Program, has said that the repeal of this act contributed to the Global financial crisis of 2008–2009,[17] [18] although some believe that the increased flexibility allowed by the repeal of Glass-Steagall mitigated or prevented the failure of some American banks.[19]

The year before the repeal, sub-prime loans were just five percent of all mortgage lending.[citation needed] By the time the credit crisis peaked in 2008, they were approaching 30 percent.[citation needed] This correlation is not necessarily an indication of causation, however, as there are several other significant events that have impacted the sub-prime market during that time. These include the adoption of mark-to-market accounting, implementation of the Basel Accords, the rise of adjustable rate mortgages etc. [20]

[Lurker]

Your wiki quote about legislative changes to CRA in 1999 doesn't support your Fox News fueled belief that the CRA was a government mandate forcing banks to make risky loans.

You also didn't respond to the facts.

How can CRA be responsible for the subprime crisis when CRA banks only made 20% of the subprime loans and they had a better deliquency record than non CRA lenders? CRA lenders were also twice as likely to retain ownership of their own loans rather than bundle them and sell them to other financial institutions. 80% of the subprime loans were made by institutions not bound by the Community Reinvestment Act.

Facts matter. CRA loans were a small percentage of all subprime loans made and they performed better than the financial institutions not bound by CRA.

You'll get no argument about the Gramm-Leach-Bliley Act. I said it was to blame last year, here and here.

[Lurker]

Here's a speech by a member of the Board of Governors of the Federal Reserve, detailing the Federal Reserves findings about the Community Reinvestment Act's impact on the subprime crisis. Kroszner was a Bush appointee.

Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA. In addition, more than 20 percent of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by independent nonbank institutions--that is, institutions not covered by the CRA.

Putting together these facts provides a striking result: 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, the local geographies that are the primary focus for CRA evaluation purposes. This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.

Of course, loan originations are only one path that banking institutions can follow to meet their CRA obligations. They can also purchase loans from lenders not covered by the CRA, and in this way encourage more of this type of lending. The data also suggest that these types of transactions have not been a significant factor in the current crisis. Specifically, less than 2 percent of the higher-priced and CRA-credit-eligible mortgage originations sold by independent mortgage companies were purchased by CRA-covered institutions.

I now want to turn to the second question concerning how CRA-related subprime lending performed relative to other types of lending. To address this issue, we looked at data on subprime and alt-A mortgage delinquencies in lower-income neighborhoods and compared them with those in middle- and higher-income neighborhoods to see how CRA-related loans performed. An overall comparison revealed that the rates for all subprime and alt-A loans delinquent 90 days or more is high regardless of neighborhood income. This result casts further doubt on the view that the CRA could have contributed in any meaningful way to the current subprime crisis.

The final analysis we undertook to investigate the likely effects of the CRA on the subprime crisis was to examine foreclosure activity across neighborhoods grouped by income. We found that most foreclosure filings have taken place in middle- or higher-income neighborhoods; in fact, foreclosure 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.

Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.

I knew you'd point to the Community Reinvestment Act because you're a wingnut and Fox News told you it was to blame. No amount of industry experts or data points will sway your opinion because Beck and Hannity said so, and you are predisposed to blame minorities. No amount of proof will make you question or abandon your sources of disinformation.

Both Embar and I asked you to link to the Government mandate. Obviously, I think you've failed. Embar can speak for himself on whether you proved a Government mandate or not.

[Fallakin Kuvari]

Typical. Because I point to something as having a hand in the problem its automatically because of FoxNews and Beck/Hannity.

I can tolerate Hannity even less than I can tolerate Rush, they're both blowhards.

http://boston.bizjournals.com/boston/st ... tory3.html

I mean, heres the ratings straight from the FDIC:

(2) ASSIGNED RATING.--The institution's rating referred to in paragraph (1)(C) shall be 1 of the following:
(A) "Outstanding record of meeting community credit needs."
(B) "Satisfactory record of meeting community credit needs."
(C) "Needs to improve record of meeting community credit needs."
(D) "Substantial noncompliance in meeting community credit needs."

[Lurker]

I mean, heres the ratings straight from the FDIC

Ratings aren't a mandate. Here's the closest thing to a mandate in the CRA.

(1) regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business;
(2) the convenience and needs of communities include the need for credit services as well as deposit services; and
(3) regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.
(b) It is the purpose of this title to require each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.

From the Boston Business Journal article: Joseph A. Petrucelli is one of the most cautious bankers in America. and "There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area," the FDIC said in its CRA evaluation.

The FDIC didn't give East Bridgewater a "needs to improve" because they weren't being reckless; they gave the low rating because they are being unnecessarily cautious at a time when we need banks to lend. 28 cents in loans for every dollar in deposits is absurd.

Completely disproving the theory (as if more proof was needed) that CRA is to blame is the fact that East Bridgewater got a 'Satisfactory' rating in 2003 and 2006, during the peak period for subprime lending, when the same overly cautious guy was in charge of the bank.

This whole discussion highlights the same dynamic found in the Honduran coup thread. In that discussion Jecks was putting more weight to cherry picked quotes from the Internet than he was in what was actually happening in Honduras. When asked to quote a single member of the coup that was making the same argument he was making, Jecks bailed and you popped in and quoted BillyBobUSA from the Hannity.com message board as proof. It was quite amusing.

You're doing the same thing now with your wiki quotes and your news articles that don't say what you think they do. You'll ignore the studies by industry experts and the data evidence so you can continue to believe what you want to believe. And you'll continue to rely on the same sources of disinformation that led you here in the first place.

[Fallakin Kuvari]

Google ftw for Lurker's case.

I wasn't being facetious with that post.

(iv) Needs to improve. The OCC rates a
bank’s service performance ‘‘needs to
improve’’ if, in general, the bank
demonstrates:
(A) Its service delivery systems are
unreasonably inaccessible to portions of its
assessment area(s), particularly to low- or
moderate-income geographies or to low- or
moderate-income individuals;
(B) To the extent changes have been made,
its record of opening and closing branches
has adversely affected the accessibility its
delivery systems, particularly in low- or
moderate-income geographies or to low- or
moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) vary in a way
that inconveniences its assessment area(s),
particularly low- or moderate-income
geographies or low- or moderate-income
individuals; and
(D) It provides a limited level of
community development services.

(3) Needs to improve. The OCC rates a
wholesale or limited purpose bank’s
community development performance as
‘‘needs to improve’’ if, in general, it
demonstrates:
(i) A poor level of community development
loans, community development services, or
qualified investments, particularly
investments that are not routinely provided
by private investors;
(ii) Rare use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Poor responsiveness to credit and
community development needs in its
assessment area(s)

The bank didn't change its level of service, so if by these standards it was infact a "limited level" they should've been under "Needs to Improve" all along.

28 cents in loans for every dollar in deposits isn't absurd, its conservative. They're being very cautious with their loans in a time when we're in a recession and more people are likely to default on those loans. They're also being conservative at a time when the country is essentially going on a spending spree.

The FDIC’s negative review of East Bridgewater Savings Bank’s loan volume is an anomaly in today’s current banking scene as lenders reel from their role in offering too many cruddy mortgage products to borrowers with weak credit.

Still, the FDIC slapped East Bridgewater Savings with a rare “needs to improve” rating after evaluating the bank under the Community Reinvestment Act.

So basically if you stay conservative and actually protect your communities money by not expanding your lending and widening your demographic to include people that may not be as likely to pay back the loan, the CRA states that your bank "Needs to Improve".

[Lurker]

The data found when experts examined the performance of banks under CRA jurisdiction isn't going to change no matter how many things you quote from google searches. The percentage of subprime loans issued by CRA banks (a fraction of what was issued by the industry at large) isn't going magically increase because you think there was a mandate in place. You've ignored all the actual data because the data disproves the theory.

If you want to ignore the data and go with single anecdotes, the "conservative" bank you are using as an example got the second highest CRA rating at the peak of the subprime mess and they were not engaging in reckless loans. They were actually being overly cautious. It was only after the economic crisis was fully known and we needed banks to begin lending that they got a lower rating. So where was the forced mandate that created the subprime crisis?

You certainly won't be able to find an industry expert who thinks CRA was responsible for the subprime mess. Op-eds and politicians maybe, but no reputable studies or experts. Maybe you can google a BillyBobUSA comment about this.

Look back on Kulaf's comments in this thread. I'm sure he works at a bank that falls under CRA jurisdiction, and he bristled at being compared to the subprime loan mills.

[Fallakin Kuvari]

If you want to ignore the data and go with single anecdotes, the "conservative" bank you are using as an example got the second highest CRA rating at the peak of the subprime mess and they were not engaging in reckless loans. They were actually being overly cautious. It was only after the economic crisis was fully known and we needed banks to begin lending that they got a lower rating. So where was the forced mandate that created the subprime crisis?

As I just said, there's no reason they should've gotten a lower rating than they did during the peak of the subprime mess. The standards the FDIC used to evaluate them had not changed. Seems kind of like bully tactics to try to open up some credit from an institution that was operating the same way it had during the peak of the subprime mess.

Additionally I think you're kidding yourself if you think details of the economic crisis are fully known, as you seem to elude that you do.

At the end of the day GLBA is to blame, but I think you're a fool if you can't see that the CRA played a part in it.

[Lurker]

Well, I posted a Republican Federal Reserve Governor summarizing a detailed study by the Federal Reserve that showed the CRA wasn't the cause of the subprime crisis, and you posted your opinion that it was. Just saying.

[Eidolon Faer]

How about the innocent kid who dies because the parents know they can never pay the bill so they don't get treatment until it's far too late? Going to shed any tears for them?

I think the O.P. missed the point slightly here.

For Conservatives, showing whether you care or not is irrelevant. It's all about getting the largest benefit to society for the smallest personal cost.

For Liberals, it's all about showing that you care. Whether what you're doing has any kind of reasonable cost/benefit ratio, that's irrelevant.

Both parties have a set of dishonest argument tactics, whether it's "holding a gun to my head" or "look at the poor innocent child." In the case of Lurker's quote above, the parents in the hypothetical situation described are the problem, because they wait till the kid is critically ill then haul him into the ER, rather than taking him in to a primary-care physician four days earlier.

Kid suffers for four days then gets dragged into an overcrowded ER, because deadbeat parents are too cheap, then the treatment the kid gets costs 10x as much to the taxpayer as it would have if we'd caught it early, AND the poor kid has a worse clinical outcome.

We can agree the system is fucked up, all right. It's just that Liberals are seemingly incapable of examining the root causes of the problem. Does the kid suffer less if he knows we care about him REALLY hard? Or does he suffer less if we ensure he gets in to see a Family Medicine specialist four days BEFORE his appendix ruptures?

[Eidolon Faer]

...and yes, the same thing applies to the Subprime Mortgage Crisis.

"Look at the poor folks who can't afford homes" was used by idiots on the Left, and "Lookit all the money we can make, if we don't lend to these people, someone else will" by idiots on the right. Both are fundamentally dishonest arguments.

The result? The poor folks end up without homes again, and financially worse-off than before. And the greedy financial twits end up broke. And now BOTH sides have their hands out to the taxpayer for a bailout.

Truth is, banks have ALWAYS been in the business of making a profit, and they've had rules for who qualifies for loans for a REASON. Neither short-sighted greed nor hyper-emotional bloody-shirt-waving are effective substitutes for cold-blooded, careful risk-benefit analysis.