(09-30-2019 08:52 AM)Owl 69/70/75 Wrote:  

(09-30-2019 08:41 AM)RiceLad15 Wrote:  The CRA was passed by large majorities in both the House and the Senate when it was passed. Only 15 of 144 R’s or 7 of 38 R’s voted no, so I would hardly call that being “passed by Dems.”

Democrats held substantial majorities in both houses, and and democrat president Jimmy Carter signed it, so I don't think it's unfair to call it democrat legislation. It's certainly not republican. And as I said, the problems not the bill, it's the way the implementing regulations were written and enforced.

Quote:And I’ve not seen racial loan quotas tied to the reason banks were making loans to people that couldn’t afford them, and then offloading the mortgages to others. Can you provide a bit more info on that? It’s an interesting perspective that adds to the narrative, which is primarily that finance wonks thought they had found a way to make high risk assets low risk.

Why would anyone make a loan to someone, knowing that the borrower could not repay? That's an economically nonsensical proposition, unless there was some external factor driving the process.

Talk to any banker from that era about what was going on. I have talked to many.

As I've said before, based on my experience doing workouts from the1989-90 crash, I would have proposed two things that IMO would have prevented the problem:
1) Make CRA a federally-insured program, like FHA, and charge a 1/4% override. If government wants imprudent risks to be taken, let government insure those risks.
2) Require any party that sells a mortgage to keep at least a 25% participation. This one was actually in a bill, and Chris Dodd killed it on behalf of Countrywide.

You ask why would people loan to someone they thought couldn't repay the loan? Because they thought the reward was worth the risk. The banks thought they would either get repaid by the borrower or didn't care because they often didn't end up holding the mortgages in the end. You're right that it sounds non-nonsensical to lend to borrowers with horrible credit, but since we know lenders lent to people with horrible credit, there must have been a "rational" reason for it at the time, right?

I still don't see the connection to needing to loan to certain minority groups, unless you're saying that you came to that conclusion via your personal conversation.

And the biggest thing your analysis of why we had a recession in 2008 has mostly not touched on is the role of the financial industry and finance wonks that did most of the damage to the economy at large (your point #2 does touch on that). Lenders sold off the bad mortgages to other companies, to get the risk off their books and get more capital to loan. These were often bought by investment banks that pooled them into CDOs, which took a lot of crappy loans and rated them as a less-risky investment because of the "diversification." And that doesn't touch on the CDSs that were then used to hedge bets on the CDOs, and make the COD investments "less risky" even though that house of cards wasn't built on a solid foundation. I don't see how CDOs were created by racial lending quotas...