Sunday, November 27, 2011

Crash starts with CRA

This is an extension of Stating the Obvious.

During the four years that have elapsed since Homeaggedon, you would think there would be some consensus around its causes. No, I don't mean the obvious one: all bankers are the unremitting, Snidely Whiplash personifications of total evil. Rather, whether there was some systemic element that ensured a housing bubble replaced the preceding secular trend in housing prices while virally undermining our economy.

Pace the MAL, there is a principal cause that by its very nature had to engender the worst recession in 60 years. Even worse, that cause came about only due to a breathtaking combination of stupidity, wishful thinking, untreatable ignorance and, in at least one case, destructive intent.

I am talking, of course about the Community Reinvestment Act.

The CRA was offspring of two seeming truisms. First, bankers were happy to take deposits from anywhere, but were racistly reluctant to lend in minority neighborhoods. Second, because home ownership is so strongly correlated with stable, law-abiding neighborhoods, government policies must step in where the market was so obviously failing.

Even taking those seeming truisms as given, analytical effort falling well short of mental exhaustion is sufficient to see the crater at which the CRA must arrive (as well as ascertain the MAL's, and ODLs', pervasive reality distortion field).

Since rascist bankers won't lend to the melanin gifted, they must be first urged, then increasingly forced, to do so in the face unyielding racism, as evidenced by the continuing reluctance to lend. But that means that money-grubbing bankers eager to make a profit wherever they can, must be first urged, then increasingly forced, to lend despite poor or non-existent credit ratings, limited employment history, and non-existent down payments.

Of course, bankers have always been willing to lend to people bearing those unfortunate stigma, but at a price: interest rates that reflected the associated higher default risk.

This is where, right at the beginning, the crash became inevitable. See if you can follow along; it really isn't too tough:

  • Homeownership is an unalloyed good.

  • Racist profiteering bankers willfully underserve challenged neighborhoods.

  • The lack of employment history and savings is unrelated to default risk.

  • Therefore, bankers must be encouraged to overcome their unwillingness.

  • When enouragment proves insufficient, coercion follows and erosion follows.

  • Coercion takes the form of congressional intervention in banking business decisions, based upon compliance.

  • Erosion takes several forms: elimination of downpayment requirements, employment and credit history.

  • The underlying presumption is (pick one or more) [extremely racist | a perfect example of magical thinking | fully intended to undermine the banking system].

    • Racist, because melanin gifted populations with otherwise identically risk enhanced financial characteristics are not nearly as likely to default as their melanin challenged counterparts. (As it turns out, the Boston Fed, through through the kind of incompetence and mendacity that is always accompanied by the modifiers "monumental" and "criminal" directly abetted that preposterous conclusion.)

    • Magical, because it required believing a simple, government imposed, solution could possibly solve a much more complex problem that by its very nature had to lie beyond congressional fiat.

    • There were some who both advocated the CRA, and hoped for its intended effect. (Note: this isn't part of the logic train, but rather an unanticipated consequence of looking into how inevitable the crash was.)

  • In order for the CRA to function (a goal hoped for by the drooling lackwits of both parties), the following had to happen:

    • A vast expansion of GSEs and the secondary market.

    • Bundling of mortgage backed securities.

    • The hiding of high risk mortgages within those bundles

In short, the route from CRA to crater was so direct as to resemble the shortest, and most obvious, distance between points. It was a route that would never have been traveled without (mostly) well-intentioned idiots (Dodd, Frank, Clinton, Bush) forcing decisions that would never have occurred otherwise.

It is odd — okay, maybe it isn't — that the inchoate, incoherent, ill-educated (or wholly ineducable) flocks that comprise the ODLs never once mention the pivotal role that the CRA had in creating our crater. Just as no one seems to mention the Greek government, or the European Union, for the string of staggering stupidities that led them to their own perfectly foreseeable smoking hole.

Instead, it's all on Snidely.

It will take awhile to read these, but your time will be rewarded. Presuming, that is, you find being appalled rewarding:
Anatomy of Trainwreck: Causes of the Mortgage Meltdown
The Community Reinvestment Act, Evaluated
The Community Reinvestment Act's Harmful Legacy

Friday, November 04, 2011

Been there, seen that

I'm in San Francisco today, staying right next to Fisherman's Wharf, and a mile and a half or so from Occupy San Francisco.

In as much as it is a nice, if slightly cool day, I decided to assign the Daily Duck's crack San Francisco I'mwitless News Team (me) to some in person on the front lines reporting.

The occupation covers a small park 100 by 300 yards alongside the Embarcadero, and consists largely of large plastic tarps haphazardly providing top cover for REI castoff tents. The Occupation seems determined to deplete the world's supply of ugly signs. They run the gamut from inchoate to incoherent, with more than a dash of illiterate. Only one I saw made a lick of sense: "Don't Piss Here."

As for the oppressors, there were two police officers strolling around looking both very professional and completely bored.

Of course, this being the Wharf and Embarcadero, and a nice day, tourists abound. Not one of whom, even if pressed on the subject, could possibly give the appearance of caring even less about the Occupation than they already did.

A friend of mine who lives in the area says the Occupation leads the local news every night. It is no more apparent to him than to me as to why this should be so.

What is readily apparent though, is that anyone seeing even the slightest similarities between Occupy [anyplace with a lawn available for complete destruction] and the Tea Party, other than that both groups are bipedal, is either delusional or lying.