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Thread: The Glass- Steagall Myth

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    Default The Glass- Steagall Myth

    Both on this board and in the media there is a popular myth that the 1999 changes to the Glass-Steagall Act caused the current credit crisis.

    Glass - Steagall was passed in 1934 in response to wild Wall Street speculation that undermined the financial condition of many banks. It mandated total separation of commercial banks ( that issue credit cards; where you go for a car loan; where businesses go for lines of credit; where you have a checking account) and investment banks ( they invest in stocks, bonds, commercial paper; real estate etc. ). Essentially it separated INVESTMENT from BANKING and LENDING.

    Over the years, banks of both kinds used various loopholes to creep into each other's territory and functions. In 1998 Sandy Weill and Citicorp wanted to take over Travelers and couldn't do it. Weill lobbied Clinton and Congress heavily for modifications and Phil Gramm pushed through a bill permitting conglomerated banking including insurance and brokerage.

    Glass- Steagall had NOTHING to do with Fannie Mae and Freddie Mac. They weren't banks.
    Glass-Steagall had NOTHING to do with credit default swaps or collateralized debt obligations. The trading in CDO's was a LEGAL "black market" with NO oversight by anybody, with or without Glass-Steagall.
    Glass -Steagall had NO PROVISION that would have prevented WAMU; or any other bank; from writing sub-prime mortgages and selling them to Fannie and Freddie.

    The only connection between the removal of Glass-Steagall restrictions and the current mess is that commercial banks would NOT have been able to buy mortgage backed securities. Nothing in Glass-Steagall would have stopped naked short-selling.

    Everyone remembers the Enron, World-com and other corporate messes which gave us Sarbanes-Oxley which was designed to (inter alia) promote accounting integrity and transparency. The SEC by regulation required publicly traded companies to use "mark to market" accounting in listing the worth of their assets.
    Assets had to be valued at the current market price which is why many banks saw their stock prices nosedive bcause the market price of their major assets - MORTGAGES and/or mortgage backed securities was going down. Glass- Steagall would not have prevented Enron or similar type scandals. It didn't require "mark to market" accounting. A big problem is the inability to value some of the mortgages and securitiesw AT ALL i.e nobody really knows or is able to tell what some of this stuff is really worth.

    So when I read or hear people say that "deregulation caused this credit crisis" or that we're all paying for "Wall Street greed" I'd like someone to stand up and bring out a few annoying historical facts.

    The bottom line is that Glass-Steagall ,if left alone, would have limited the size and scope of the current mess but we'd still have at least 2 to 3 trillion dollars of bad mortgages. We still would have had unregulated trading in CDO's. We'd still have banks reluctant to lend except to good risks. There would still have to be some help from the Fed and FDIC to deal with the mess.

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    Default Re: The Glass- Steagall Myth

    I know this has been discussed a lot on here but I need a clear concise answer to this question. What caused the current economic problems?
    "A stupid man's report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand." - Bertrand Russell

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    Quote Originally Posted by Katrine View Post
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    Default Re: The Glass- Steagall Myth

    Quote Originally Posted by Miss_Luscious View Post
    I know this has been discussed a lot on here but I need a clear concise answer to this question. What caused the current economic problems?
    It has a lot of corollary enablers but the underlying root causes of the current "credit crisis" are sub-prime mortgages issued to people unable to pay them back.

    Melonie and I have laid out the history of the Community Reinvestment Act and Fannie Mae and Freddie Mac in related threads in this forum and in Dollar Den.

    If you could look them over at your leisure, I'll try to answer any additional questions you might have.

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    Default Re: The Glass- Steagall Myth

    Quote Originally Posted by Miss_Luscious View Post
    I know this has been discussed a lot on here but I need a clear concise answer to this question. What caused the current economic problems?

    I can tell you in one word......GREED.

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    Default Re: The Glass- Steagall Myth

    I know it's been posted about before but to be honest, those posts are way too long, full of (snips) and opinion. I want an objective short summary.

    So the CRA is to blame? How are Freddie and Fannie connected?
    "A stupid man's report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand." - Bertrand Russell

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    Quote Originally Posted by Katrine View Post
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    In other words: Boo-motherfucking-hoo

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    Default Re: The Glass- Steagall Myth

    it actually started here ...



    and by sheer coincidence a young attorney at the Buycks-Roberson who was part of this precedent setting case was none other than today's Sen. Barack Obama

    ~
    Last edited by Melonie; 10-01-2008 at 02:59 PM.

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    Default Re: The Glass- Steagall Myth

    But the CRA that they're talking about was passed over 30 years ago but the housing bubble didn't start until after the Gramm-Leach-Bliley act of 1999 that allowed banks to expand from mortgage holders to investment sellers, bundle up bad mortgages and sell them off as mortgage-based-securities that were to mature later. Since they could sell their loans in the short term, they no longer cared if the person could pay or not, so they made a shit ton of bad loans, sold them all to other people who used those mortgage-based-securities as debt to leverage and then when people stopped paying their mortgages, shit came down.

    So banks were mandated to offer credit to certain areas but they were not mandated to just give credit to any and everybody regardless of credit rating. They just had to be willing to give credit to those areas. It seems like they decided that since they could just sell the mortgages as soon as they closed on them, it didn't matter what the credit ratings/income/job history looked like and they started writing all these bad mortgages out of greed.

    How does the government saying, "Stop discriminating against certain people/areas when they are credit/income worthy" translate into the government FORCING banks to make bad loans and in the process make trillions of dollars? That doesn't make any sense at all.
    "A stupid man's report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand." - Bertrand Russell

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    Quote Originally Posted by Katrine View Post
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    In other words: Boo-motherfucking-hoo

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    Default Re: The Glass- Steagall Myth

    From another forum:

    Mortgage defaults didn't cause this crisis. Waves of personal bankruptcies and loan defaults aren't anything new. The problem is that financial institutions won't extend credit to each other, not just because some are carrying bad mortgages, but because their assets may consist principally of mortgages whose only known value was set by the company that owns the mortgage.

    Every company has to have assets equal to their operating needs. A manufacturer has to have enough assets that are liquid (can be easily converted to cash) to buy materials and pay their employees. Commercial banks hold customers deposits and must have enough liquid asses to accommodate the maximum foreseeable withdrawals.

    Financial banks provide working capital for business startups and expansions by underwriting stocks and bonds - they give the company the capital and then sell the stocks and bonds to recoup their investment. They've got to have liquid assets sufficient to cover stocks and bonds between their issuance and sale. Insurers who often insure stocks, bonds and business ventures have to have sufficient liquid assets to cover claims.

    When one company can do all three types of financial business, a crisis in any of them can drain off liquid assets and cause a companywide failure. When the different types of financial institutions are intermingled, a crisis in one quickly becomes a crisis in all.

    This was one of the primary causes of the bank runs that sparked the Great Depression. To insulate the different types of financial businesses, Congress passed the Glass-Steagall Act in 1933, which prohibited doing business in more then one financial arena.

    In 1999, at the behest of financial institutions that wanted a piece of every pie, Phil Gramm rammed the Gramm-Leach-Bliley Act (GLBA) through a Republican controlled Congress. This repealed the Glass-Steagall firewall and opened the door to industry wide failure, again.

    Now that he'd built the coffin, Gramm nailed down the lid. In late 2000, as the Clinton administration was becoming the Bush administration, Congress was rushing to pass the annual Omnibus Budget Reconciliation Act to move budget account surpluses to cover shortfalls. At the last minute, Gramm slipped in a 262 page amendment called the Commodity Futures Modernization Act of 2000 (CFMA). The dense and obtusely technical language was passed as part of the budget bill without debate.

    This act almost totally deregulated derivatives, aka futures. Now each company that held derivatives, like subprime mortgages, was free to determine their value when calculating the value of their liquid assets, with little or no government verification. Any company that wanted to overextend itself could simply overvalue its derivatives and hope they didn't get caught in a cash crunch.

    They did. Companies who can't meet their cash obligations go belly up. Normally, a company caught in a cash crunch borrows cash on short terms with its less liquid assets as collateral. But no one knows which mortgage assets are likely to fail and which ones' value is overstated. So nobody loans and everything crashes.

    The Community Reinvestment Act (CRA) of 1977 prohibited redlining, effectively saying that, if your bank or loan company's market is Onondaga County, you can't just loan money in Skaneateles and Manlius and decline all applications from the city. It didn't require lenders to issue bad loans; pure greed did that.

    CRA was passed in 1977. GLBA and CFMA were passed in 1999 and 2000. Things started to come apart in 2005. If CRA caused this, it took three decades to do it.
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    Quote Originally Posted by Katrine View Post
    Ya'll bitches need to calm down. Cerously.
    In other words: Boo-motherfucking-hoo

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    Default Re: The Glass- Steagall Myth

    ^^^ actually, it was the 1995 Clinton changes to the CRA which provided the necessary 'leverage' for 'community organizers' to force banks to write risky 'subprime' loans ... because the 1995 change allowed 'community organizations' to block planned expansions of banks who did not make X number of risky 'subprime' loans in order to earn a certain 'CRA Score'.



    Thus if Citibank wanted to open new branches or enter into new areas of banking, it was absolutely necessary for them to write risky 'subprime' loans - and at the time hold those shaky loans on their own 'books'. However, bank stockholders began to balk at the rising percentage of shaky loans, and began to resist such loans even though doing so could result in prosecution, fines, or blockage of business expansion plans.

    To work around this problem, ACORN managed to enlist the assistance of HUD and thus Fannie Mae ... with guaranteed that 'subprime' loans made by banks in order to earn a 'CRA Score' that would allow them to expand their business could be resold to Fannie - thus taking the 'subprime' loans (and the risk) off the bank's own 'books' and transferring it to Fannie's 'books'.



    However, an unintended consequence of active Fannie involvement in the purchase of 'subprime' loans was that it became competitively impossible for banks to offer mortgage loans of their own (i.e. mortgages to be held on the bank's own books) versus 'fronting' loans for resale to Fannie. And given the fact that Fannie's creditworthiness criteria was typically looser than the bank's own criteria ( see 1994 Boston FED report ), if banks wanted to increase their volume of mortgage loans they were presented with the very simple option of 'fronting' as many loans as possible for resale to Fannie.

    Gramm-Leach-Bliley doesn't come into the equation until 1999 or so, and essentially allowed banks to 'front' their own mortgage loans for direct resale into the same secondary bond market where Fannie had previously been the dominant mortgage bond 'supplier'.

    ~
    Last edited by Melonie; 10-01-2008 at 03:28 PM.

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    Default Re: The Glass- Steagall Myth

    They were forced to give people credit even if their credit score was 499 and they only made $10,000/year? Are you sure about that? Fannie has credit and income requirements (I know, I've tried to get a mortgage through them). Again, no one said to these banks, "We don't care what their income and credit is! You better give whoever walks in here a damn loan". The banks saw an opportunity to make easy money with the passage of GLBA in 1999 and the CFMA in 2000 and they took advantage of it. The housing bubble started soon after this (2001).

    Even after reading the links you provided, I don't see where they were forced to approve bad loans, only that they had to make sure they offered the opportunity for people in certain areas to get loans if they were qualified.
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    Quote Originally Posted by Katrine View Post
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    Default Re: The Glass- Steagall Myth

    Again, no one said to these banks, "We don't care what their income and credit is! You better give whoever walks in here a damn loan".
    In point of fact, this is PRECISELY what the 1995 revisions to the Community Reinvestment Act implemented ! However, it didn't apply to anybody, just minority / low income residents of large cities !


    (snip)If the CRA cannot be rationalized as a corrective for lending discrimination or some other identifiable market failure, then the CRA must be essentially a redistributive program that should be justified by equity rather than efficiency considerations. Indeed, the desire to simply transfer resources to low-income neighborhoods is understandable in view of their appalling condition. But how should such a transfer be carried out?

    The CRA has been likened to a tax on conventional banking linked to a subsidy to lending in low-income neighborhoods (White 1993; Macey and Miller 1993). Although banks are examined regularly for compliance with CRA regulations and receive public CRA ratings, enforcement relies on the power of the regulatory agencies to delay or deny an application for permission to merge with or acquire another bank or to open a new branch. The prospect of having an application delayed or denied, along with the public relations value of a high CRA rating, provides banks with a tangible incentive for CRA compliance.26

    According to this view, by tilting banks’ profit-loss calculations, the CRA regulations give banks an incentive to make loans they would not otherwise have made. To the extent that banks are induced to make loans and investments they would not otherwise have found profitable, the CRA regulations encourage banks to subsidize lending in low-income neighborhoods.
    Investments at concessionary rates and CRA-related outlays, such as for marketing programs and philanthropic contributions, directly reduce a bank’s net earnings. The gap between the cost of these loans to borrowers and what they would have cost in the absence of the CRA represents a transfer to the low-income neighborhood.

    Two questions naturally arise, though, if the CRA is viewed as a redistributive program. First, why should we provide low-income neighborhoods with an enhanced credit supply rather than unencumbered cash payments? Second, why should the banking industry be the source for such transfers? (snip)

    (snip)Why should depository institutions be singled out for the affirmative obligation imposed by CRA regulations? Why do other lending intermediaries such as mortgage, finance, and life insurance companies escape obligation? More broadly, why should financial intermediaries bear the burden rather than society as a whole? Senator Proxmire provided a partial answer when introducing the original Act by noting that a bank charter “conveys numerous benefits and it is fair for the public to ask something in return.”29 The CRA, in this view, is a quid pro quo for the special privileges conferred by a bank charter, which incidentally explains why the Act links assessment to a bank’s “application for a deposit facility.” To the extent that CRA obligations are unprofitable or are equivalent to charitable contributions, apparently they are to be cross-subsidized from the stream of excess profits otherwise generated by the bank charter.(snip)

    from

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    Default Re: The Glass- Steagall Myth

    The government refused to reward banks who didn't lend to minorities and so the banks just started lending to everyone regardless of worthiness so they could make more money. It's not like the banks were supposed to be giving mortgages to these low-income people so they could buy a house in Beverly Hills. They were supposed to provide mortgages to people who lived in low-income areas that had low priced housing. You can still afford a cheap house if you don't make a lot of money. The problem came when they decided to ignore all income and credit info (with things like No Income, No Assets and complete No-Doc loans) because they were able to quickly sell the mortgages.
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    Quote Originally Posted by Katrine View Post
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    Default Re: The Glass- Steagall Myth

    (snip)"Clinton administration appointees at agencies responsible for enforcing the ECOA and the FHA have also indicated an intensified interest in the issue of lending discrimination. At the Justice Department, Janet Reno appeared at a
    number of high-profile press conferences announcing fair-lending settlements. At one such press conference in January 1994, announcing a settlement with the First National Bank of Vicksburg and the Blackpipe State Bank, Reno said that “today’s actions demonstrate that we will tackle lending discrimination wherever and in whatever form it appears. No loan is exempt, no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement.”"(snip)

    (snip)"But the most interventionist members of the Clinton Administration in this area are HUD Secretary Henry Cisneros and Assistant Secretary Roberta Achtenberg. Cisneros’ department has developed rules for lenders that encourage them to increase approval rates for loans to minority applicants by 20 percent within one year; increase minority hiring by 5 percent; increase the purchase of goods and services from minority and female-owned businesses; and adjust compensation structures to award staff who effectively serve lower-income applicants or those applicants unfamiliar with the lending process. Achtenberg, a former civil rights lawyer, has pushed for a new arsenal of weapons to combat what HUD sees as discrimination, including new regulations under the FHA. Among these weapons are: new rules for government-sponsored enterprises, a program to encourage fair-lending agreements between lenders and HUD, and a new unit of HUD dedicated exclusively to banking issues.(snip)

    from

    When banks are directed that they must increase their lending to minorities by 20% in one year, under threat of restriction of business expansion or lawsuits or prosecution, they are strongly motivated to do whatever is necessary in order to comply. Unfortunately, it didn't take long for banks to exhaust the available supply of 'qualified' minority / low income borrowers. So from that point forward, in order to comply with the mandate of a 20% annual increase in minority / low income loan volume, the only way to do so was to reduce creditworthiness standards to include formerly 'non-qualified' minority / low income borrowers so that new minority / low income loans amounting to 120% of the previous year's minority / low income loans could be approved and reported and included in the bank's CRA score !!!

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    Default Re: The Glass- Steagall Myth

    Quote Originally Posted by Melonie View Post
    (snip)"Clinton administration appointees at agencies responsible for enforcing the ECOA and the FHA have also indicated an intensified interest in the issue of lending discrimination. At the Justice Department, Janet Reno appeared at a
    number of high-profile press conferences announcing fair-lending settlements. At one such press conference in January 1994, announcing a settlement with the First National Bank of Vicksburg and the Blackpipe State Bank, Reno said that “today’s actions demonstrate that we will tackle lending discrimination wherever and in whatever form it appears. No loan is exempt, no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement.”"(snip)
    This proves my point. The CRA was supposed to stop discrimination, not make banks give to unqualified people.

    And this puts a dent in your "forced to make bad loans" argument:

    Quote Originally Posted by Melonie View Post
    Cisneros’ department has developed rules for lenders that encourage them to increase approval rates for loans to minority applicants by 20 percent within one year
    See that word encourage? The government indeed gave incentives to banks who dealt with low income minorities but they in no way FORCED them to make bad loans. Nothing you have posted shows how they were forced. The only thing that made them say "fuck it" to credit and income verification was their own greed.
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    Quote Originally Posted by Katrine View Post
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    In other words: Boo-motherfucking-hoo

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    Default Re: The Glass- Steagall Myth

    Plus - if they were truly just doing what he government forced them to do, then when they ran out of qualified applicants, they could have gone to the powers that be and showed them the applications they received that were not satisfactory so that they wouldn't get in trouble for not meeting the quota. It could have gone to court if necessary but they would have won because there were simply no more qualified people to give mortgages to. Instead, the decided it would be best to be underhanded. The banks are NOT victims in this no matter how you try to spin it.
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    Quote Originally Posted by Katrine View Post
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    Default Re: The Glass- Steagall Myth

    Quote Originally Posted by Miss_Luscious View Post
    This proves my point. The CRA was supposed to stop discrimination, not make banks give to unqualified people.

    And this puts a dent in your "forced to make bad loans" argument:



    See that word encourage? The government indeed gave incentives to banks who dealt with low income minorities but they in no way FORCED them to make bad loans. Nothing you have posted shows how they were forced. The only thing that made them say "fuck it" to credit and income verification was their own greed.
    It's not just the government, or the banks, or the idiotic people.

    The government (F&F) basically said they'd cover about any loan. Congress as a whole, and really even as an individual, didn't take any steps to really fix the problem, most likely because no one cared. The first time I heard about it was in... (05) when Bush suggested something, though I don't think he followed through.

    The banks were giving loans to about anyone, which was bad. BUT, they thought they could make money, and if they didn't issue it, someone else would. So many people were offering loans, it was a business decisicion, and I think that effected their judgement. What the hell though, that's capitalism. Although they still used shitty judgement and were very very irresponsible, and in some cases probably a little dishonest.

    Then you have the wonderful American People. They got loans they couldn't afford and were buying houses they had not business even looking at. People can tell me all they want, about how the American's didn't know what they were doing and all that shit, but I don't buy it. People are dumb, but they aren't that dumb, and plenty of the people that took terrible loans are respectable people with solid jobs that they work hard at.

    It was all three, plus a few other things tossed in there, to try and turn it back to something from 10 years ago is, in my opinion, pointless.

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    Default Re: The Glass- Steagall Myth

    Thank you Ms_Luscious, excellent job of breaking things down.

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    Default Re: The Glass- Steagall Myth

    Quote Originally Posted by Melonie View Post
    it actually started here ...

    http://clearinghouse.wustl.edu/detai...by%7CcaseName;

    and by sheer coincidence a young attorney at the Buycks-Roberson who was part of this precedent setting case was none other than today's Sen. Barack Obama

    ~
    In what regard?

    All that decision said is if I am a Black dude applying for a loan and I have a job I've worked at for 10 years, make $50K a year and have a good credit rating a bank couldn't treat me differently than a White dude with the same characteristics.

    Seriously, what does that have to do with banks making loans to high risk borrows*, for increased profit, who have walked away from said loans because the value of the property they have purchased is now upside-down and below the outstanding balance of the loan?

    *Many of whom weren't people purchasing homes to live in [though some were] but speculators purchasing multiple homes in order to work on them and flip them.
    Fiat justitia, pereat mundus.


    BTW, while we are on the subject, is it needed to point out the obvious: That it is just possible that if you are willing to judge the worth of someone simply by what you read on a website about them it might say a whole hell of a lot more about you than it says about the person you are judging?

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    Default Re: The Glass- Steagall Myth

    ^^^ you have to tie the court decision back to the Boston FED study conclusion to arrive at the truth of the situation ... which was that in order for minority / low income big city residents to be treated 'equally' their loan applications had to be treated differently !!!

    (snip)" A recent study of mortgage default data supports these alternative explanations. The study found that an African-American borrower is more likely to default than a white borrower, even after controlling for income, wealth, and other observable borrower characteristics.17 Why would a minority borrower be more likely to default than an equally qualified white borrower? Mortgage defaults often are attributable to “trigger events,” such as involuntary job loss or large unexpected health care costs, that sharply reduce the borrower’s ability to repay.18 Most people are poorly insured against such risks, and it seems plausible that minorities experience these events more often than whites.19 For example, unemployment rates are higher for minorities than for whites, but more important, the probability of involuntary job loss is higher for minorities (Jackson and Montgomery 1986; Blau and Kahn 1981; Flanagan 197.

    Minority household holdings of financial assets are far smaller on average, reducing their ability to withstand uninsured financial shocks (Kennickell and Shack-Marquez 1992). Minorities tend to be less healthy on average and are more likely to lack health insurance (National Center for Health Statistics 1994). There seems to be no research on whether these differences in the likelihood of trigger events persist after controlling for income, wealth, credit history, and other factors observable at the time of the application. But it seems plausible that these risk factors can explain the disparity in mortgage default rates and can thereby account for disparities in loan approval rates. This line of reasoning suggests that disparities outside lending markets—in labor markets, for example—might well be responsible for what appears to be lending discrimination.2"(snip)

    (snip)Many writers have pointed out that low-income housing markets are frequently characterized by “spillover effects” because the physical condition and appearance of one property affects the desirability of nearby properties. This
    leads to a strategic interaction among property owners; improvements to a house in a well-maintained block are worthwhile but would have little value if the rest of the block is poorly maintained or vacant. A run-down neighborhood
    might be worth renovating from society’s point of view, yet no single property owner has an incentive to invest. This strategic interaction extends to potential lenders as well. Each bank judges an applicant in isolation, ignoring the effect on nearby properties. Taking the poor condition of neighboring properties as given, the loan might appear to be a poor risk, even though simultaneous loans to improve all properties might be worthwhile. All would be better off if lenders could coordinate their decisions and agree to lend, since those loans would be profitable. But in the absence of coordination, each bank’s reluctance to lend confirms other banks’ reluctance to lend and becomes a self-fulfilling prophecy of neighborhood decline. In these circumstances, a genuine market failure could be said to occur."(snip)

    To spell this out, in order to avoid claims of discrimination vis a vis approving a loan for a suburban white borrower while rejecting a loan from a minority inner city borrower, the CRA lawsuit forced banks to limit their creditworthiness decisions to narrow criteria like current income versus loan amount / equity. Other classic criteria like job stability, net worth, neighborhood risk factors, past financial history of the borrower, adjacent property values etc. had to essentially be thrown out the window.

    When later HUD / CRA directives began to require banks to show a measurable year over year growth in the number of minority / low income inner city loans being approved, even the narrow criteria like current income versus loan amount / equity became 'negotiable'. Of course, around the same time, the same HUD / CRA directives had also established Fannie Mae as a ready buyer of an infinite number of monority / low income inner city loans, such that banks' de-facto creditworthiness criteria for originating new minority / low income inner city loans was allowed to devolve to the lowest common denominator of 'anything that could still be sold to Fannie Mae' under their minority / low income housing assistance program.

    As stated by other posters it is certainly true that many banks, after being faced with negative consequences for failing to approve X number of minority / low income inner city loans, and after being provided with the means of transferring the risk of minority / low income loans from their own books to Fannie Mae, chose to 'climb onto the bandwagon'. Arguably, as long as one bank was willing to do this, competing banks didn't have a choice about doing exactly the same thing - as their real world alternative was to both lose market share to their competitors as well as potentially face business restrictions / lawsuits / prosecution due to a low CRA score. While it can't be denied that banks quickly became 'willing partners', it would be less than factual to attempt a claim that greed on the part of banks was a primary cause. The facts are clear that government policy mandating a significant increase in minority / low income home ownership, and government mandates re CRA enforcement and Fannie Mae criteria, both enabled and encouraged the rapid growth of 'subprime' lending.

    ~
    Last edited by Melonie; 10-02-2008 at 01:40 AM.

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    Featured Member Miss_Luscious's Avatar
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    Default Re: The Glass- Steagall Myth

    Holy Shit - I agree with Jester. It really was everyone's fault. The government, the banks and the buys all had a hand in this.
    "A stupid man's report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand." - Bertrand Russell

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    Quote Originally Posted by Katrine View Post
    Ya'll bitches need to calm down. Cerously.
    In other words: Boo-motherfucking-hoo

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    Quote Originally Posted by Miss_Luscious View Post
    They were forced to give people credit even if their credit score was 499 and they only made $10,000/year? Are you sure about that? Fannie has credit and income requirements (I know, I've tried to get a mortgage through them). Again, no one said to these banks, "We don't care what their income and credit is! You better give whoever walks in here a damn loan". The banks saw an opportunity to make easy money with the passage of GLBA in 1999 and the CFMA in 2000 and they took advantage of it. The housing bubble started soon after this (2001).

    Even after reading the links you provided, I don't see where they were forced to approve bad loans, only that they had to make sure they offered the opportunity for people in certain areas to get loans if they were qualified.
    "Forced" ? No. Incentivized to do it ? Yes. Everyone along the line from the banks issuing the mortgages to the sellers of the mortgage backed securities was trying to lay off the risks on someone else.

    As part of the speculative bubble in real estate, many banks relaxed their standards. Instead of requiring a 20% down payment they were issuing 100% mortgages and even 125% mortgages lending MORE than what the house was worth anticipating that house prices would continue to rise.

    All I'm saying is that were it not for Fannie Mae and Freddie Mac there would NOT be trillions in bad mortgages. Without the bad mortgages, there would not be bad securities. Without the bad mortgages there would not have been a housing bubble.

    Did Wall Street deregulation aggravate the problem ? ABSOLUTELY. Had Glass- Steagall been left alone and had Gramm's changes not gone through, the problem would have still existed and been a major drag on banking and the economy BUT it would have had the same impact as the current mess.

    You can add in the effect of "mark to market " accounting, "voluntary compliance" and elimination of the "uptick rule" and even assuming that Cox did not screw up as badly as he did; we'd still have a MAJOR banking problem and a huge credit squeeze.

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    To dispel another myth. Before the 1995 CRA REGULATORY changes, what banks were "refusing to lend to minorities" ? Anyone ? What they were doing was lending to minorities with jobs; good credit ratings and a down payment. In a lot of places such folks were in short supply.

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    ^^ES you know that's not true. There certainly was discrimination. It's not something the Liberals made up.
    "A stupid man's report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand." - Bertrand Russell

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    Quote Originally Posted by Katrine View Post
    Ya'll bitches need to calm down. Cerously.
    In other words: Boo-motherfucking-hoo

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    Quote Originally Posted by Miss_Luscious View Post
    Holy Shit - I agree with Jester. It really was everyone's fault. The government, the banks and the buys all had a hand in this.
    It's gotta happen every now and then...

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    Quote Originally Posted by Miss_Luscious View Post
    ^^ES you know that's not true. There certainly was discrimination. It's not something the Liberals made up.
    Prove it ! Name the banks that were "discriminating" BASED ON RACE after 1977.
    Under the CRA they'd be jeopardizing their ability to merge and expand. Under STATE Banking Laws they'd be risking their license to operate.

    A good lending risk is a good risk regardless of color. A bad risk is a bad risk. Period.

    Was there historical discrimination in lending ? Of course. That's one reason blacks started their own banks like Carver which went belly-up btw without FDIC insurance.

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