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Not exactly, Dave.

See this post at The Big Picture. I don't know if I buy all of it (mainly because I don't know enough about the situation and reliable info seems to be difficult to get in this era of partisanship). But there are some good questions there.

Keep politics and greed from all sides of the aisle out of banking -- except for some sensible regulation.

And: we're all at fault.

The real question is how did the politics affect the direction of what was acceptable?


I don't see how the article you link to and Dave's article are at odds. The Kurtz article shows how ACORN used the CRA to pressure the local banks into doing the things that Big Picture article details.

It's not the articles that are odds. It's Dave's gloss on the NRO article.

I guess I'm just a little tired of the facile finger pointing that is going on.

WM, most commentary has characterized the problem as either stupidity (why did bankers foolishly make so many bad loans?) or greed (bankers made bad loans and investment houses securitized them to make a quick buck with no concern for the long-term viability of the loans or the securities).

The NRO article brings out the political context: Bankers both large and small now operate subject to regulatory requirements that apparently require them to make some bad loans. Financial institutions are subject to political pressure. This context helps us understand why bankers, generally conservative and risk-averse, made so many bad loans.

It's not finger pointing. It's an attempt to understand what happened and why. If the politics of financial regulation is part of the problem, we are better off to acknowledge the fact and correct the problem.

Tim J,

The whole point of the Big Picture piece is to call people who blame the crisis on the CRA "wingnuts." To pretend these two articles are not at odds is to have failed to read them.

No, it's a Republican hit piece on Acorn straight from one of the key talking points that the Republicans are coming up with to divert blame in this crisis. It's one that probably needs to be done* and one that's much better informed/sourced than what Michelle Malkin has been railing about, but it doesn't present the whole picture.

From the post I linked to:

"50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs?"

What I'm afraid of is that the Republican obsession with Acorn narrows the picture way too much and diverts attention from the unregulated mortgage brokers and the investment bankers who bought the mortgages. I understand that you may just be trying to add another dimension to the crisis. But this sentence isn't at all correct: "So apparently the real problem isn't greedy subprime lenders, it's greedy subprime politicians and activists."

The "real problem" is greed and politics up and down the market.


"If the politics of financial regulation is part of the problem, we are better off to acknowledge the fact and correct the problem."

I completely agree. Both sides need to clean their houses.

*I'd love to see a true bipartisan examination of the Acorn groups. I don't like the knee-jerk reaction against activism for the poor by some conservatives. On the other hand, I lived in the Bay Area for almost two decades so I know how political pressure from activists can be used poorly.

Most of the factors being bandied about (deregulation, CRA, etc.) played a part in the meltdown, but none of them were the primary cause.

The main reason for the mortgage crisis has been the artificially low interest rates encouraged by the Federal Reserve's overprinting of currency to pay for huge increases in government borrowing and spending over the last 8 years. More money in the system equals easier credit; easier credit equals more credit-unworthy applicants getting approved; more credit-unworthy approvals equals more defaults.

It's all laid out in Michael Flynn's article "The Roots of the Crisis: How did Wall Street get into this mess?."

While the Bush administration's (lack of) monetary policy was an important factor, it essentially comes down to what happens when an unregulated central bank can print fiat currency.

I've also seen a Youtube video flying around that tries to blame the whole situation on Fannie/Freddie/ACORN and the Dems, followed by a bunch of American flag images interspersed with footage of McCain and Palin.

It's not hard to argue that there were a lot of problems w/ the way the GSE's were set up and that they were destined to fail, but they are not at the heart of the crisis taking place right now, but rather casualties of it.

I would argue that credit default swaps are more responsible for this mess than any other single factor. They are basically contracts between two parties where one will, for a fee (usually a percentage of the overall value of a bond per year) guarantee that if defaults occur that the other party will be made whole. Basically insurance, but not regulated as such.

Many firms used them as insurance to hedge against any potential losses on their bond holdings. Many argue that lending standards were loosened to the extent they were because everyone felt like their losses were insured by the CDS's they were holding, but the problem was and is that the risk in the underlying securities was grossly underestimated and most of the companies issuing CDS's had nowhere near enough capital to make good all of the bonds that were experiencing defaults. That's basically what killed AIG. Add to that the fact that a lot of CDS's were written for speculative purposes (as in a party believes that certain bonds are going to default and buys a CDS contract that pays them in event of a default, although the party doesn't own the bonds in question, so that you could have several CDS contracts on a single bond, multiplying the effect), and you had a recipe for disaster.

If it had just been Fannie or Freddie this would have been contained at them. The Republicans are trying to blame them because it's the only argument they have. I think there is plenty of bipartisan blame to go around (the Commodities Futures Modernization Act of 2000 that banned the regulation of CDS's was passed w/ majority votes by both parties w/ little or no debate or hearings, and signed into law by Clinton), but the Republicans have been the main backers of financial deregulation, and the Bush administration has pushed a culture of lax regulation within the federal agencies that are supposed to monitor the financial industry, and it is happening on their watch.

60 Minutes and This American Life had some recent shows on CDS's and other related issues that did a pretty good job of trying to explain the situation. Here are some links.

60 Minutes on Wall Street's Shadow Market

This American Life: Another Frightening Show About the Economy

NY Times Investigation on AIG's Downfall

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