The One Trick Pony Rides Again

Posted: September 29, 2008 in Commentary, Economy, Politics

Congressman Keith Ellison trots out the one trick pony of race again to address a complex issue.

Much to the shock and contempt of Keith Ellison, the culprit responsible for today’s financial crisis has been discovered by those on the right end of the political spectrum.

The villains?

“Poor blacks caused this,” said Ellison, Minnesota’s the 5th District congressman, scornfully. “That’s what we’re supposed to believe. Little ACORN caused this. The mighty captains of Wall Street got taken down by little ACORN and poor black people. That’s what you’re hearing on the right. The gall and audacity of this is beyond imagination.”

Doug Grow (author of this piece) tries to pull a fast one on his recollection of history. Check out this next excerpt.

The act had the support of a nonprofit organization, the Association of Community Organizations for Reform Now (ACORN). It survived two terms of Ronald Reagan, the Gingrich era and three terms of Bushes before apparently creating today’s crisis.

Name the president that was left out? Bill Clinton.
Instead of naming him, he inserts Newt Gingrich (Speaker of the House at the time) in that time slot. Then of course he Jumps to Bush.

Why is it important to include Bill Clinton? Here’s why.

In my last post I quoted a excerpt found in Wikipedia under “Community Reinvestment Act”, started by former President Jimmy Carter and expanded by Bill Clinton. Here is what took place under Clinton.

In 1995, as a result of interest from President Bill Clinton’s administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators’ attention on institutions’ performance in helping to meet community credit needs. These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision. (more…)

I also quoted the following from City Journal in my last post.

Nevertheless, until recently, the CRA didn’t matter all that much. During the seventies and eighties, CRA enforcement was perfunctory. Regulators asked banks to demonstrate that they were trying to reach their entire “assessment area” by advertising in minority-oriented newspapers or by sending their executives to serve on the boards of local community groups. The Clinton administration changed this state of affairs dramatically. Ignoring the sweeping transformation of the banking industry since the CRA was passed, the Clinton Treasury Department’s 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods? (source)

Back in ’02, President Bush continued to encourage the expansion of minority home ownership. Fannie Mae was more than happy to oblige by committing more money to minority households. IMO, Bush should have left this alone. But mind you, if he did not publically encourage minority home ownership, the words fiscally conservative would have been made synonymous with anti-home ownership for minorities. See how the game is played? Again, Bush should not have not played the game in the first place. Back to Ellison.

Says Ellison: “To suggest that the greatest financial crisis we have faced since the Great Depression was caused by legislation that was created to help prevent low-income individuals from assuming high-cost, subprime loans that have caused the crisis today is absurd. To suggest that struggling families trying to keep their home brought down the Titans of Commerce, the Masters of the Universe on Wall Street, is ludicrous. To suggest someone who is raising three children while holding down two minimum wage jobs on a high school education was able to stall one of the greatest economic engines on Earth needs their head examined.”

[…]

“I’m really steamed’ (more…)

From all my reading and research on this issue, I found NOBODY blaming minorities as the cause of this mess. Yet Ellison throws that suggestion out there to muddy up the issue in a way only overly race sensitive can understand.

While blame can be directed towards both Democrats and Republicans, much of the blame lies right at the door of poor governmental regulation that not only encouraged lending high-risk loans, but mandated it. Even Bill Clinton acknowledged this and blamed his own party recently in an interview.

To understand how these subprime loans caused such a big mess on Wall Street, I point you to David Leonhardt’s piece in the NY Times back in March of this year. Here is an excerpt:

“Because these loans go to people stretching to afford a house, they come with higher interest rates — even if they’re disguised by low initial rates — and thus higher returns. The mortgages were then sliced into pieces and bundled into investments, often known as collateralized debt obligations, or C.D.O.’s (a term that appeared in this newspaper only three times before 2005, but almost every week since last summer). Once bundled, different types of mortgages could be sold to different groups of investors.” (more…)

So these “sliced” loans were spread all throughout Wall Street, effectively tying much of our economy on the success/failure of these high-risk loans.

Bill Clinton on Thursday told ABC’s Chris Cuomo that Democrats for years have been “resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac” (source w/video link)

As a person who has been involved in the real estate industry, I can tell you that Blacks were not the only ones benefiting from loose regulations. Whites, Hispanics, Asians, you name it, all benefited from the ability to secure mortgages for practically a song. Ellison is the one who needs his head examined for trying to reduce a complex issue to his conjured up ghosts who are specifically blaming minorities.

In short, this whole thing was a social engineering project that went really bad. The Community Reinvestment Act was built on the well-intentioned, but flawed ideology that tells us home ownership is a right. Home ownership is a privilege, not a right that most of us worked hard to obtain. Perhaps one of the biggest lesson learned so far in this mess is that not everybody can handle home ownership, even if is was a right.

Related

Economist Walter Williams saw this coming back in January of this year:
Subprime Bailout

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Comments
  1. Keith says:

    Good stuff, good research.
    IBD has a very good article that also demonstrates that perhaps all of this should not be out squarely on the shoulders of Bush and that others might well share in the blame.

    The IBD article is here–> http://www.ibdeditorials.com/IBDArticles.aspx?id=307241242284619

  2. Before Gore, Kneel says:

    I think the NYT writer is mistaken about slices. An individual mortgage is, I think, not sliced up. Instead it is aggregated into a group of differently rated mortgages, from good to ho-hum. These groups are constructed from large pools of mortgages. These groups are called ‘tranches’ from french slice. The slice didn’t and doesn’t divide a mortgage further. The point was to create a ratable collection of mortgages that could be calculated to have such and such risk, and a calculated rate of return.

    Personally, I like Rich Toscano best.
    http://piggington.com/

    and to the point here, http://piggington.com/subprime_soup

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