One More Time: It Was Not the CRA Act

Ritholtz is an equal-opportunity critic of the bank/mortgage mess, and he has it (mostly) right.

The VERY short recap of the 30-year stew-cooking, according to Barry:

-Free market absolutism becomes the dominant intellectual thought.
-Deregulation of markets, investment houses, and banks becomes a broad goal.
-Legislative actions reduce or eliminate much of the regulatory oversight; SEC funding is weakened.
-Rates come down to absurd levels.
-Bond managers madly scramble for yield.
-Derivatives, non-bank lending, leverage, bank size, compensation levels all run away from prior levels.
-Wall Street securitizes whatever it can to satisfy the demand for higher yields.
-”Lend to securitize” Nonbank lenders sell enormous amounts of subprime loans to Wall Street for this purpose.
-To meet this demand, non bank lenders collapse lending standards, leading to a credit bubble.
-The Fed approves of this innovation.
-Housing booms, then busts
-Credit freeze, market collapse recession.

I red-highlighted some key words. "Absolutism" is key, for it is absurd to posit that all of mankind makes the correct business decisions all the time--and it is equally absurd to posit that all of mankind will make the morally-superior choice all the time. Further, "absolutism" in deregulation would imply that 'too big to fail' institutions do not exist. So as it turned out, deregulation was absolute in only one sense: the Big Boys did not lose.

But that was the absurd position of Alan Greenspan; recall that "Bubbles" was a worshipper at the Altar of Ayn. Ideas have consequences, folks.

Further, it was not really the banks, subject to and obsequious to CRA, which made the majority of the subprime loans; it was the mortgage-brokers. IIRC, brokers were responsible for ~75% of the bad paper.

Don't believe that CRA was NOT a problem? Then take Barry's $100,000.00 challenge and PROVE that it was!

I will quibble with Barry about the role of the (D) Congress beginning in 2007. While he states that the GSEs smell very bad, he seems to forget that the (D) Congressional majority was complicit (tacit or not) in the decision to allow GSEs to take on non-conforming--i.e., crap-- mortgage paper.

Barry prefers to blame Bush and the (R)s. Bush was a problem, indeed, with his 'chicken in every pot, car in every garage, and everyone a home-owner' blather--but he DID notice that the GSEs were heading to Hell in a handbasket.

Bawney Fwank didn't care. But then, Bawney Fwank doesn't have children, does he?