RE: Houston Chronicle endorses Obama
Yes... we're both over-simplifying a very complex discussion... but I think we understand eachother and GENERALY agree... your point about fees is absolutely correct... but didn't that "greed factor" create thousands of small businesses?? Mom and Pop mortgage companies?? Is it really a surprise that when you take banks, with generations of experience in lending money out of the equation, and turn lending money into a "fit this box, get a check" process... that credit analysis suffers, and historical comparisons get thrown out the window???
I agree 100% that there is plenty of blame to go around... in many cases, the culprit is the same... good intentions corrupted by the realities of the world. CRA is perhaps 10% of the problem... but IMO, things LIKE CRA are to blame for perhaps 30% of the problem... and that if far more than anything else. I've listened to morons like Franks talk about how McCain was in favor of deregulation... and deregulation caused this problem... NOTHING could be further from the truth. REGULATION, not deregulation caused this problem. Our tax code is regulation... and most of the problems caused by Enron et al were the result of people trying to deal with the pages and pages of unclear tax code. When things are unclear, there is room for argument. If one argument is advantageous, and another disadvantageous, why are we surprised when people make the argument advantageous to themselves? Sure, it can be taken too far, and that is fraud... and fraud is a part of the problem... but if there were no question of right or wrong... then there would be no question of responsibility. Franks has been the biggest arguer of this point... especially in re FNMA... and he is knee deep in the cause.
When Congress mandated CRA, they didn't put banks on notice to be fair in lending... they created a moral hazard that the government (meaning taxpayers) might have to step in... at least to some degree. In recebt years, this has been done by making rates low to help people qualify for loans, keeping rates low to stop adjustments from hurting as many, and now fixing rates at artificial levels.
I place a lot of blame on bank regulation because the particular bill in question that established regulations for lenders passed the Republican controlled Senate on a virtual straight party line vote... 1 Democrat, probably Lieberman... voting with Republicans... but Clinton threatened to veto it... so they added CRA... social engineering, and the bill passed by something like 93-7. Home ownership was not the goal of the bill... market stability was... but all of the things added to it under the guise of "affordable housing" created the problem we have now (at least as far as that particular bill is concerned)
Banks never wanted to make 30 year loans because nobody takes out 30 year CDs. Mortgages were originally the territory of thrifts... but they all failed the last time we had rate shock. The FHLB was set up to allow banks to borrow longer term funding... and FHLMC and FNMA were set up to also ensure long-term funding to match the term of loans that were longer than banks wanted them to be... CMOs and the like were set up to also provide long term financing. Banks once again went away from offering 30 year fixed rate MBS because there were plenty of sources of funds for borrowers. They set up mortgage companies to access those sources. Teaser arms and the like were attempts by banks to make non-economic loans somehow economical. The competition from FHLMC and FNMA, and their subsequent push into other markets created an artificially low cost competitor for loans. If banks wanted to make loans... they had to compete. While this sounds good in practice... when the competition is making loans that shouldn't be made... you have almost no choice but to do so as well... and in fact, Congress was mandating that you do so... one way or another... either by originating or buying loans or securities backed by loans that served certain social purposes.
Making money is the goal of business. Like it or not, it is why they exist. It is the basis of our economy... it is what creates jobs. If someone wants to create a benevolent business, fine... That is their right... and that will serve a part of the market willing to pay more for it. MANDATING that businesses be benevolent simply encourages/forces them to seek additional ways to make money... in the case of banks, that usually means by paying lower depository rates, which discourages saving... or charging higher fees, borne mostly by those who can least afford it.... creating the need for more social engineering to solve the problem created by the first round of social engineering. The complex securities created by wall street were an attempt to make the non-economic, somehow economic. It was a musical chairs of risk, and the music finally stopped. Had it not been for the underlying social engineering, there would have been no need for the financial engineering that hid the facts...
This 700byn bailout, or whatever it will end up costing taxpayers is a reasonably foreseeable consequence of the actions of the past two decades or so. The wealth created by and for NOT just by a few CEOs, but the thousands of mom and pop mortgage companies and real estate agents and construction companies and home flippers and 'pimp this house 'ers" is now being paid for by the Taxpayers... by the ones furthest from the chairs.
The solution is not MORE regulation, and MORE government and MORE social engineering. It is CLEAR regulation, which GENERALLY means much less of it.
(This post was last modified: 10-22-2008 09:22 AM by Hambone10.)
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