Ellington

Conservatives have a new scapegoat to take the blame for the economic meltdown over the last few weeks. Syndicated columnist and supply-side advocate Lawrence Kudlow summed it up during a Sept. 18 morning news talk show.

"It's time for the Congress, Republicans and Democrats to stop encouraging, exhorting and forcing banks to make low-income loans with no documentation. Stop (the regulation) that literally pushed these lenders to make low-income loans," Kudlow announced on Joe Scarborough's MSNBC morning news analysis show, "Morning Joe."

The Community Reinvestment Act, passed in 1977, requires banks to lend in low-income neighborhoods where they take deposits. The act, along with the Fair Housing Act of 1968, was created to fight the long and discriminatory practice of red-lining, wherein lending agencies established zones, often based on the local population's race or ethnicity, that dictate whether or not the populace could qualify for loans. Frequent red-lining caused much of the inner-city decay following the National Housing Act of 1934, which had established the process of red-lining.

University of Michigan law professor Michael Barr testified before the House Committee on Financial Services that the vast majority of bad loans of the last few years were not the kind given under the Community Reinvestment Act, however. He said 50 percent of sub-prime loans were made by mortgage companies that are not subject to federal supervision and another 30 percent were made by bank affiliates that are also not subject to routine supervision or examinations.

Sonya Murphy-Berry, head organizer for the Mississippi chapter of the Association of Community Organizations for Reform Now, also called ACORN, said economists had no business trying to blame a 30-year-old law for the fairly recent mortgage meltdown.

"The government, who relaxed the procedures for qualifying for loans, is what caused this breakdown. The Community Reinvestment Act has been around since the 1970s and the economy has never toppled until now," Murphy-Berry said. Community Reinvestment Act loans "are responsible for loans that meet strict underwriting requirement."

"They're not usually sub-prime loans. They're prime loans with fixed rates. Obligators have found default rates on CRA loans to be pleasantly low," she said, and aimed fault at the largely unregulated derivatives market. "They were buying and selling packaged loans, with no attempt to value them on the basis of the likelihood of getting repaid. They were bought and sold on the face value of the shaky loans," she said.

Conservative New York Post columnist Stan Liebowitz blamed the mortgage meltdown on the government's demand for lending agencies to loosen underwriting standards to end lending discrimination. "From the current hand-wringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards—at the behest of community groups and 'progressive' political forces," Liebowitz wrote as the mortgage issue quickly grew into a crisis.

Liebowitz pointed out that minority mortgage applications were rejected more frequently than other applications, but not for racial reasons. "The overwhelming reason wasn't racial discrimination, but simply that minorities tend to have weaker finances," he wrote.

But, according to Liebowitz, the government mandated that lenders update their method for determining eligibility for a home loan.

"Some of these 'outdated' criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, (they) ruled that participation in a credit-counseling program should be taken as evidence of an applicant's ability to manage debt," he wrote.

Often, an overextended borrowers' only means of landing a loan for a home beyond their income was to adopt an adjustable rate mortgage--the kind that starts out with an abnormally low percentage rate but inevitably climbs out of reach after a handful of years. Lenders usually offered this deal with a warning that the borrower was expected to refinance the loan after a two to three-year period--when the borrower's credit improved after steady monthly mortgage payments. Many borrowers learned that lenders were unwilling to refinance their American Dream after the two-year period. The resultant mass surrender of newly unaffordable mortgages resulted in a sub-prime mortgage meltdown.

The nation's growing cache of bad loans arrived just in time to take advantage of emerging deregulation making the selling of those bad loans to other lending agencies. Former Texas senator and Senate Banking Committee Chairman Phil Gramm (currently a member of the Sen. John McCain's presidential campaign) attached an amendment to an appropriations bill in 2000 that triggered sweeping deregulation of investment banks, removing credit derivatives, credit defaults, and swaps from government scrutiny.

"I don't claim to be an economist but I know that sellers could unload junk loans for good money," Murphy-Berry said. "The sub-prime crisis is the result of greed and poor regulation. These lenders approved risky adjustable rate lending mortgages without considering whether the buyer could afford them, and then sold them off to the nearest suckers. That's not the fault of the homeowners," Murphy-Berry said.

Conservatives are not just aiming their attacks at CRA, with ACORN itself drawing fire. House Republican leader John Boehner says on his Web site that many Republicans like himself balked at the House's Sept. 29 Wall Street bailout proposal because of what they described as ACORN-friendly incentives that Democrats added to the package.

Boehner called the insertion a "left-wing giveaway" that Democrats were "pushing to force taxpayers to bankroll ... a discredited ally of the Democratic Party."

The failed bailout bill allowed the federal government to purchase bad loans from businesses like Bear Stearns, with the possibility of gaining limited profits from the loans. The government would transfer 20 percent of those profits to the Housing Trust Fund, Capital Magnet Fund, and the U.S. Treasury.

Quoting The Wall Street Journal, Boehner called the funds "slush funds" that pump tax dollars into the coffers of low-income housing advocacy groups like ACORN (which Obama represented in a 1995 case).

"The rescue package should not become a 'Christmas tree' for the Democratic majority's far-left wing political agenda that seeks to shower taxpayer dollars upon groups like ACORN," Boehner stated. "On behalf of beleaguered taxpayers across the nation, House Republicans will continue to fight to remove the ACORN pay-back and any other Democratic poison pills from the economic rescue package."

Steven Adamske, spokesman for Rep. Barney Frank, D-Mass, chairman of the Financial Services Committee, told Politico that none of the bailout's potential profits are earmarked for ACORN. "All funds would go to state and local governments," Adamske said, explaining that state and local governments could then dole out money as they choose.

Republicans are suspicious of the group, however. ACORN is pushing hard to register voters this year to influence the presidential election, and does not deny Democratic presidential nominee Barack Obama as a former member. Republicans also point out that the organization is being investigated in several states over voter fraud.

An ACORN press release said the organization's voter registration work has made it a target for attacks by partisan activists who "fear that new African American, Latino, and low-income voters may not support their candidates or policy positions and may seek to pass laws that would disenfranchise these voters."

ACORN's home office sent out a press release admitting that it had caught a number of ACORN employees faking registration cards (they get paid based upon the number of cards they produce) and subsequently fired them. The organization also states that it reported the suspects to authorities and encourages the prosecution of the suspects to the fullest extent of the law.

Murphy-Berry said she regretted that employees abused the organization for money.

Also see the JFP's Sept. 30, 2008, editorial, GOP: Watch the Racist Talking Points

Previous Comments

ID

138979

Comment

Also, See our Sept. 30 editorial on this travesty.

Author

DonnaLadd

Date

2008-10-13T10:59:37-06:00

ID

139024

Comment

It's Lawrence Kudlow, not Kudrow. Lisa Kudrow from "Friends" is obviously on your mind.

Author

dwfinms

Date

2008-10-14T03:36:26-06:00

ID

139034

Comment

Don't worry President Bush is fixing to inject 250 billion to fix the problem. Recently Bush was asked how is General Motors performing and he said with the surge in troops to Iraq General Motors was winning the war against terror.

Author

Walt

Date

2008-10-14T09:16:13-06:00

ID

139092

Comment

Bailing out banks or the government having ownership in banks, isn't this socialistic and communistic. Harry, et al, what does your party really stand for? I hope y'all have run out of Bushes. His approval rating isn't even meausrable any more.

Author

Walt

Date

2008-10-14T16:05:22-06:00

ID

139104

Comment

Just saw this, dwf. Thanks for catching the typo. I doubt very seriously that Adam has any idea who Lisa Kudrow is. And that's a compliment. ;-) This also reminds me to post the longer version of his story, which we had to butcher to fit into print last week. I'll replace above. Thanks much. BTW, I was at a form at Jackson State today where an impressive African American journalist pointed out that the black press is still needed to cover issues that the mainstream and "whtie" media won't–such as redlining. As much as I agree with her about the need for the ethnic press, I was thrilled to point out to her that we ran an editorial against the CRA scam weeks ago, talking about redlining, leading up to this story in last week's paper. It was a proud moment. ;-) (Oh, and the Ledger did an editorial a couple days ago, too.)

Author

DonnaLadd

Date

2008-10-14T18:29:57-06:00

ID

139105

Comment

Fixed it above, Donna. Still had "Kudrow" in the second paragraph.

Author

LatashaWillis

Date

2008-10-15T06:41:29-06:00

ID

139106

Comment

Bailing out banks or the government having ownership in banks, isn't this socialistic and communistic. State capitalism Shades of Fascist Mussolini's Italy (or worse) to me.

Author

Jeff Lucas

Date

2008-10-15T06:50:38-06:00

ID

139109

Comment

It's not necessarily communist or facist. Wingers might say so, but it ain't true. [re the government having ownership in banks] Sweden, a democratic socialist country, did a similar thing to mediate a crisis in the early nineties. Massive government investments helped us get out of the depression. Understanding the past can help you understand the present.

Author

FreeClif

Date

2008-10-15T08:48:04-06:00

ID

139111

Comment

I'm not really against government doing what needs to be done to make the economy work. I'm just so sick of sorry ass republicans and conservatives talking all kinds of darn nonsense then running like scalded dogs when their pathetic crap blows up in the face. Capitalism has to be mixed with some socialism for an ecomomy to work. People with good sense knows this. I'm simply sick of those strangenuts, wingnuts and slangnuts arguing pure capitalism as if it has no flaws or devastating consequences.

Author

Walt

Date

2008-10-15T08:52:18-06:00

ID

139113

Comment

True that. Medicaid, Social Security, Fed ownership of land it leases to oil companies are all examples of [socialistic] things we think are normal! It doesn't mean we become facists or communists and worship the state.

Author

FreeClif

Date

2008-10-15T09:05:46-06:00

ID

139114

Comment

For the word "socialism" to apply, there would have to be public rather than private ownership or control of property and natural resources. Nothing that is occurring now even remotely resembles those circumstances. Instead the State is intervening in the markets to further the interests of some capital players and cover their losses. It does betray much of the "free market" principles espoused by conservative Republicans. This country has flirted with variations of socialism for most of the 20th century, based on policies of both parties. Democrats are just more honest about it being part of their agenda. And Bush has proven the modern Republican party isn't as fiscally conservative as they would like to portray themselves.

Author

Jeff Lucas

Date

2008-10-15T09:06:40-06:00

ID

139115

Comment

Thanks Jeff and Whitley.

Author

Walt

Date

2008-10-15T09:13:19-06:00

ID

139130

Comment

Read Matt Taibbi (of Rolling Stone, etc., fame) ripping Republican apologist Byron York a new one over attempts to turn the financial-crisis blame away from where it belongs. Delicious. A taste: M.T.: You don't think the unregulated CDS market was a major factor in the current crisis? Were you watching when AIG almost went under? Were you watching the Lehman collapse? B.Y.: I think that Fannie Mae and Freddie Mac were also major factors. And I believe that many of the problems in the mortgage area can be attributed to the confluence of Democratic and Republican priorities: the Democrats' desire to give mortgages to people, particularly minorities, who could not afford them, and the Republicans' desire to achieve an "ownership society," in part by giving mortgages to people who could not afford them. Again, I believe that if you are suggesting that the financial crisis is a Republican creation, or even more specifically a McCain creation, I think you're on pretty shaky ground. M.T.: Oh, come on. Tell me you're not ashamed to put this gigantic international financial Krakatoa at the feet of a bunch of poor black people who missed their mortgage payments. The CDS market, this market for credit default swaps that was created in 2000 by Phil Gramm's Commodities Future Modernization Act, this is now a $62 trillion market, up from $900 billion in 2000. That's like five times the size of the holdings in the NYSE. And it's all speculation by Wall Street traders. It's a classic bubble/Ponzi scheme. The effort of people like you to pin this whole thing on minorities, when in fact this whole thing has been caused by greedy traders dealing in unregulated markets, is despicable. B.Y.: I was struck by the recent Senate testimony of James Lockhart, who is head of the Federal Housing Finance Agency, about the sheer recklessness of Fannie in recent years. Despite "repeated warnings about credit risk," Lockhart testified, Fannie became more reckless in 2006 and 2007 than they had been in the scandal-ridden tenure of Franklin Raines (who departed in 2004). In 2005, Lockhart said, 14 percent of Fannie's new business was in risky loans. In the first half of 2007, it was 33 percent. So something terribly wrong was going on there, and it became a significant part of the present problem. M.T.: What a surprise that you mention Franklin Raines. Do you even know how a CDS works? Can you explain your conception of how these derivatives work? Because I get the feeling you don't understand. Or do you actually think that it was a few tiny homeowner defaults that sank gigantic companies like AIG and Lehman and Bear Stearns? Explain to me how these default swaps work, I'm interested to hear. Because what we're talking about here is the difference between one homeowner defaulting and forty, four hundred, four thousand traders betting back and forth on the viability of his loan. Which do you think has a bigger effect on the economy?

Author

DonnaLadd

Date

2008-10-15T14:34:34-06:00

ID

139224

Comment

Are Mexicans the New Negroes? Doggone it, it's about time African Americans got a break. Brittanicus, can you provide a reference to the alleged HUD data about the five million fraudulent mortgages for illegal aliens? Did illegal Mexicans cause the economy to crash? Doggone it, what's next --- will they plant Mexican marijuana in the highway medians? Maybe we can grind it up and use the weed oil in our new hybrid vehicles --- then, when we see a vehicle smoking on the highway we won't have to roll our windows up.

Author

FreeClif

Date

2008-10-16T12:17:30-06:00

ID

139349

Comment

Back to the topic, and the CRA. Economist Dean Baker sums up how stupid the CRA rumor is thusly: How could the CRA be responsible for forcing financial institutions to make subprime loans when they were not even covered by the CRA. It makes as much sense to blame Elvis. In discussing the role of Fannie Mae and Freddie Mac in the crisis, it would have been useful to point out that they lost market share during the peak years of the housing bubble. Their share of the mortgage market fell from 50.1 percent in 2002 to 34.8 percent in 2006. While they did get heavily involved in junk mortgages, they lagged the private sector. They did not create the problem. H/T Folo.

Author

DonnaLadd

Date

2008-10-18T12:30:52-06:00