Business Bloggers To Debate CRA Role In Housing Crisis For $100K

Hey, everybody! Want to make a quick and dirty $100,000? All you have to do is beat Barry Ritholtz, business journalist and author of Bailout Nation in a debate over whether the Community Reinvestment Act caused the entire housing industry to melt down into unending crisis. Here's Ritholtz, serving it up:

I've run out of patience with tired memes and discredited claims by fools and partisans.

[...]

Well, its time to put up or shut up: I hereby challenge any of those who believe the CRA is at prime fault in the housing boom and collapse, and economic morass we are in to a debate. The question for debate: "Is the CRA significantly to blame for the credit crisis?"

A mutually agreed upon time and place, outcome determined by a fair jury, for any dollar amount between $10,000 up to $100,000 dollars (i.e., for more than just bragging rights).

There's no shortage of potential challengers. You can pull a veritable rogue's gallery of CRA paranoiacs from this posting from Mary Kane at FAIR: Charles Krauthammer, Neil Cavuto, Lisa Schiffren, Alex Castellanos, even Rush Limbaugh. But according to Felix Salmon, it looks like Ritholtz is going to sparring with Clusterstock's John Carney.

That'll make for an interesting debate. Carney's only recently changed his mind on the CRA issue. On June 23, Carney published a post entitled, "Sorry, Folks, The CRA Really Did Require Crap Lending Standards." Carney followed up with a flurry of blog entries after that, and is today looking for backers. (Carney has a fair question, by the way, on how, exactly a "winner" in this debate is to be determined.)

Reuters' Felix Salmon is of the mind that Carney's crazy, but nevermind that! I don't see Salmon risking any of his green on this.

So, that's today's update on how your financial journalists are diddling around, making high-stakes blog wars with each other while everyone else in the world slides slowly and inevitably into unemployment.

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Comments

[Jason G]

You guys have it all wrong. It's not CRA, but CRA and ACORN in concert with each other to create the new American Al-Qaeda. I read it on the internet, in an article that takes quotes out of context and infers insidious agendas from benign government jargon. WAKE UP PEOPLE, THIS IS GOD'S AMERICA!

http://virginiavirtucon.wordpress.com/2008/09/15/anatomy-of-a-financial-crisis-the-cra-and-acorn/

[Jesse Torres]

I get what the CRA opponents are "trying" to by blaming the CRA for loosening the lid on this whole mess. The unfortunate aspect of your approach is that it will gererally work.

The one thing the public should understand - that would not be understood unless you were an insider (banker with CRA responsibility) is that banks' CRA ratings had been doing fine without subprime loans. Take a look at the historical public CRA ratings out there before subprime loans. You'll find that nearly all have been either "Satisfactory" or "Outstanding."

Next, there is no competitive advantage in having a CRA rating better than your competitors. When was the last time you saw BofA, Wells, Chase or any other major player advertise on TV, radio or print, "come to us...we're a CRA Outstanding bank!" If the industry was doing fine before subprime came along and if there is no competitive advantage for doing better CRA work or having a higher rating, subprime did not matter.

Third, other than a handful of regulators who specialize in CRA and community development, CRA is treated as a regulation of lesser importance. Regulators are most interested with CAMELS ratings . In fact, subprime lending generally does not fit the CRA loan model because subprime loans are generally deemed violations of fair lending laws, which are incorporated into CRA bank examinations.

Jesse Torres
President and CEO
Pan American Bank
East Los Angeles, CA

[rjhuntington]

It's the derivatives. Sub-prime mortgages, written for any warm body that walked through the door, were used as fuel for creating $1.2 quadrillion ("notional" value) in derivatives. This massive roll of derived toilet paper is what brought the system down, not the mortgages themselves.

$1.2 quadrillion is over a thousand trillion dollars, or approximately 20 years of global economic output. Global GDP is (or was) about $64 trillion, a tiny figure compared to $1.2 quadrillion and far more than the value of the underlying mortgages that were used to create the derivatives. This is the scam the commercial and investment bankers ran.

It is patently impossible to redeem that amount of paper. There is not enough money in the world to do it. The ultimate result has to be the destruction of the banking system. Any attempt to redeem or purchase those toxic assets, which have no intrinsic value and a notional value of 20 times global GDP will result in the swift end of the international banking cartel.

No, it wasn't the sub-prime mortgages or the CRA that caused the downfall. It was the derivatives based on the mortgages, the notional value of which far exceeded the real value of the actual assets, the underlying properties, which became dangerously inflated by the heated market created by the derivative scam.

[flossophy]

I've been saying it all along... CRA plus Fannie & Freddie led to this financial crisis.

Bush tried to regulate FM&FM multiple times, but the Democrats blocked it on party line votes.

Oh, but the budding pr0gressoids still believe it was evi| capitalists and BushCh3ney... Would someone help inform these drones?

[vfs11]

cra has the lowest rate of default in the subprime category

[Waltfl]

Copy Cat! Old Hank has been sayin' it all along first!

http://celebgalz.com/hank-williams-jr-mccain-palin-tradition-video-lyrics/

[garystartswithg]

then awesome -- sign up for the debate so i can laugh at how soon you get knocked off your little soap box.

[ihavenobias]

Great, you've been wrong all along. Or at least since October when Newsweek completely debunked the right wing BS that CRA and Fannie/Freddie created the financial disaster:

http://www.newsweek.com/id/162789

[Lyr]

The CRA didn't cause the crises, but it didn't help either. Just one bad policy among many many much worse policies.

[oldcliche]

Can click the link I posted below, and explain why CRA mortgages have such a low rate of default?

[quindy]

How do you force a bank to lend money to someone who cannot repay the loan?

[Shovel4U]

In November of 1999 then democratic president Clinton signed into law a bill known as the Gramm, Leach, Bliley act. This bill was the sweeping financial reform needed to make America competitive. It repealed some of the financial regulations defined by the 1933 Glass Steagall, and the 1956 Bank Holding Act. here was one section of the bill which almost saw its demise. That was section Vi the Community Reinvestment Act Provisions. This section required increased bank examinations to verify the quotas of high risk loans were being met by those participating in the de-regulation activities. The smaller financial intuitions were targeted with higher examinations to verify they did not rise to the next dollar level plateau without maintaining the proper quota for high risk loans.The quota of high risk loans required by the CRA is what fueled the sub-prime lending market. All types of incentives were used to get the market rolling so quotas could be met. Eventually as prospectus buyers started to evaporate, other incentives were needed to bring in more higher risk buyers. The process continued with ridiculous practices like interest only mortgages, adjustable rate mortgages, balloon mortgages, non income qualifying mortgages (or liar mortgages), and just about any other non qualifying activity that can be considered. Without the CRA being tied to the banking reform of 1999, there quite possibly would not have been a sub-prime mortgage market or our current crisis.

[tiredofthesameoldstuff]

CRA loans were only done by two of the subprime lenders. Out of twenty-two mortage lenders involved in subprime loans only two of them did CRA loans and that was like five percent out of their loans. Fannie Mae, Freddie Mac got into the subprime business because of how much money they could make and they actually got out of the subprime business two years ago before the mortage crisis happened.. Most CRA loans are in fact repaid at a higher percentage then regular loans and guess what they aren't reallly risky at all most CRAs are for small businesses and low income home owners who are buying cheap homes and also have good credit history. It's not risky at all it's just not very profitable. Subprime loans were pushed because they could make a property that was valued at 10,000 dollars into a few hundred thousand dollars. CRA loans on the other hand didn't change the property values.

[oldcliche]

http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

Try giving that a read. It might just make you stop reading those talking points. At least one could hope.

[gs425]

Anybody that has a clue on actual 'lending standards' knows that the mortgage meltdown had nothing to do with race or minorities. Those relaxed standards effected ANYONE who took a mortgage they could not afford. It didn't matter if you made 15,000 or 1,500,000 a year, if you took a mortgage larger than you could afford....you where over-extended and frankly, should not have been in that home.

The forced 'relaxation' of the standards is what should be of issue.

[garystartswithg]

awe but its so much easier blaming it on minorities and liberals and acorn and stuff.

[RRoadrunner]

Keep the money. I would guess a higher percentage of those who got homes via the CRA programs where the victims of preditory lenders, which caused the meltdown.

[gs425]

preditory lenders=scapegoat. Nobody but the buyer is at fault for taking a mortgage they could not afford. If you don't understand what your signing....you don't sign it. If you cannot afford a loan...you don't take it. A home is the largest purchase you will ever make, if you jump into it blindly, you deserve everything you get.

[TovSquirrel]

It was the lender who offered the loan to who person who should not take the proffered loan--and in all probability, knew the loan was a high risk for both parties.

All fair and even, right? No moral quagmire here. Nothing to see. Please move along.

[Waltfl]

Pointless argument. For a party that is driven by pseudo-christian values, a sober analysis of a situation beyond "guilt" and "fault" is merely impossible. Like children, Republicans always need a culprit, and it will never be one of their own. Agreeing that the CRA was not the cause of the current melt-down would also raise the question about the real reasons. We can't blame it on Carter any more, and can't blame it on Obama yet. That leaves Clinton.

No matter how much money is offered, the common Republican will never admit that it had something to do with 8 years of failed Bush policies and ninja capitalism. He will connect his three brain cells, and come to the following conclusion:

"Carter already started it. Then, "Slick Willie" forced Fanny Mae to give unsecured loans to all them welfare-queens and blacks, and that's why we are in that mess." makes perfect sense when you are a Republican.

[BurtonOerney]

"Like children, Republicans always need a culprit, and it will never be one of their own."

All of the adults know the banksters are to blame completely and we won't be happy until they're all in jail.

[Shovel4U]

there by moons glamorous light
set a tiny pink unicorn
sparkles of the rainbow
eliminated the night
I tiptoed oh so carefully
to get a closer glance
what to my dismay
she snuggled me gleefully
in grace we played
until the sun arose
she pranced into the shadows
looking back, then she nayed
now I long for moons glamorous light

[Republicrats]

Like it or not, CRA was PART of the problem...

[WinterParkMom]

You are misinformed. Do you even know what the CRA is? And the regulation itself does not allow the bank to change it's standard lending policies...fyi

If the banks did so, they merely used the CRA as a cover excuse.

[flossophy]

CRA created competition in the subprime market... which the market responded to.

Then Fannie & Freddie started gobbling up all that bad paper.

You are really misinformed if you only get your info from PBS, NPR, etc... that's only 1/3 of the story.

[paganmist]

Please put your mouth where your money is. Go on. Take your proof and get 100K while you're at it.

No?

Then sit down and shut up.

[KYlawyer]

See my above post, but of course Rush told you its true so it must be.

[brt929]

"A mutually agreed upon time and place, outcome determined by a fair jury, for any dollar amount between $10,000 up to $100,000 dollars (i.e., for more than just bragging rights)."

That's why this would never work, as much as I wish it would. Can you really find an unpartizan jury?

I am so sick of the Right-wing blaming this on the CRA, just as they blame their loss of the election on ACORN.

[flossophy]

This comment is pending approval and won't be displayed until it is approved.

Well, you're going to be 's|ck' of hist0ry... because CRA did cause the crisis. Bush tried to prevent it, but the Dems b|0cked it.

S`u`c`k`s to be on the |eft, huh.

[KYlawyer]

FACT: CRA requires that all loans be made with “safe and sound lending practices” and does not require a lowering of underwriting standards in making community based loans.

FACT: If an institution fails to maintain a satisfactory rating, that rating comes into consideration when regulating authorities review applications for new deposit facilities or mergers. The act does not provide for administrative penalties, such as fines and cease and desist orders, or grant authority for the U.S. Department of Justice to sue under the Act

FACT: Janet Yellin, CEO of the Federal Reserve Bank of San Francisco, “"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households."

FACT: The majority of sub prime loans were made by originators not covered by the CRA.

[KYlawyer]

FACT: If the GOP was sooo concerned about the CRA why did they do nothing to regulate, they held complete control of Congress until 2007, well after the subprime crisis exploded.

[HmblDog]

It kinda makes you wonder "what might have been" if only Bush's party had a majority in the Senate or House. Even if he had a majority in one or the other he might have been able to slip something past those slippery rascal dems.
Well we'll never know now.

[JustJoy7]

It's good to know that someone thinks that we minorities suddenly gained that much power. LOL Some were minority, but the bulk was the upper middle class white community. Even on a whim, they would not approve enough minority people for mortgages as big as the ones that caused the collapse. Get real folks. Didn't happen. IT WAS WALL STREET, THE BANKS, AND OTHER POWERFUL FINANCIAL INSTITUTIONS that set up a PONZI scheme out of pure greed that backfired on them that caused this mess. NOPE, wasn't the minorities from the mix.

[Republicrats]

"From the "Community Reinvestment Act" that pressured banks into affirmative-action lending, to those "governmen­t-sponsore­d enterprises" Fannie Mae and Freddie Mac -- who bought up all the resulting subprime loans and repackaged them as "investment grade" securities -- the greasy thumb-prints of government were all over this fiasco from beginning to end."

[dcree77]

The content of your post makes clear that you have know idea what you are talking about. The bulk of the loans that made up the Collateralized Debt Obligations or other financial instruments that led to the collapse came from entities that were not subject to the requirements of the CRA. Countrywide and other similar entities, for the most part, were non-depository financial institutions and therefore had no obligations to comply with the requirements of the CRA. Purchases of these batches of subprime loans by Wall Street firms happened precisely because Fannie Mae and Freddie Mac were not buying the loans. There are books available that discuss the actual cause of the crises that are not biased or intended to espouse some ideological view point. It really would benefit everyone genuinely interested in the cause of the crises to seek these materials out rather than bloviating based on pure ignorance.

[Suzanne525]

Credit default swaps contributed significantly to the current financial meltdown. Unregulated and only the wealthy participated.

[kamenwati]

Who pressured the banks to target so-called minorities with sub-prime mortgages? Since you're so into point fingers, I got a finger for you.

[KYlawyer]

If you believe that screed, you obviously believe Obama is not a ctizen, and the bible stories about talking snakes and Noah's Ark is true.

[BlueFloyd]

Even if CRZ did contribute to his mess, it could easily be the SUPPLY side of it, and not the consumer side at all.

Blaming someone who got a mortgage from an unscrupulous shyster, is like blaming a sick person who got ripped off by an unscrupulous doctor.

[avchavis]

White men have run things in this country for over 2 centuries. Blaming CRA is like laying the blame on non-white people for the housing market crisis?! OUTRAGEOUS! Not enough non-white people own homes in America to cause the collapse of the housing market. Whenever there's a crisis in this country why do non-white people always get blamed?!

[avchavis]

When I say non-white I mean African-American, Latino and Asian who are no longer the MINORITY.

[Meah]

You are uneducated, are you not?

[FightingTheRight]

If CRA caused it, it sure did take along time to have an effect.

Also, it didn't change the lending criteria.

[magic3400]

Your right, it only changed who has to hold onto the risk...

Heck, I'll loan Satan a million bucks if I don't have to hold the paper for any length of time.

Just like that guy in the PSA commercial says, "Hey, don't blame me, man"