Thursday, October 16, 2008

Pundits are wrong to fault lending to the
poor for the subprime mortgage meltdown

From the Houston Chronicle editorial board:

Forcing banks to extend mortgage credit in poor neighborhoods has not fixed every problem of the inner city. But returning to the days when banks blatantly discriminated against minorities will not inoculate us against economic crisis either. Incredibly, that is what some observers of the current downturn imply is a solution when they rail against the CRA and blame low-income borrowers for the failure of the subprime marketplace.

It is true that many people — including those of moderate means and the well-to-do — signed on to mortgage and refinancing terms that they should have known were beyond their ability to repay. They must share some culpability for the subprime disaster.

But as many more thoughtful commentators already have pointed out, most subprime mortgages were financed by lenders that are not depository banks and therefore not regulated by the act. What's more, there is no federal edict or statute that mandates that unregulated lenders create loan products requiring no documentation of income or assets and for amounts well above the realistic value of the purchase property. And no law pushed lenders to aggressively market their wares to clearly unqualified borrowers.

Nor did the CRA call on investment banking firms to package and repackage those risky loans into complicated investment vehicles and sell them to investors as highly rated securities.

Meanwhile, it's important to note that not all subprime borrowers were low-income minorities. The majority were white, and many were well-off.

More here.

Only a couple of weeks ago did I hear about this latest piece-of-shit "argument," which clearly comes out of some dumbfuck conservative think tank, on a cable news shoutfest show--an idiot right-wing pundit was asserting that a federal program I had never heard of was responsible for the credit meltdown we're now trying to deal with. I'm used to hearing stupid conservative arguments, but this was weird and new: for months the overall narrative had been about greedy lenders and foolish borrowers, but never about the Community Reinvestment Act, which according to the above linked essay "require[s] banks taking minority residents' deposits to also make good-faith efforts to extend loans to them."

Clearly, this one was hatched as a desperate rhetorical maneuver aimed at taking some of the heat off of much embattled right-wing free market ideology. I thought it was so stupid nothing would come of it. After all, conservatives come up with bullshit like this all the time. They offer tax vouchers as a solution for failing school systems, trying to bring market-like competition to something that is so utterly unlike consumer products such as soap or cars that one wonders if these people actually believe what they're saying. They offer tax incentives for individuals to create savings accounts as a solution for mass lack of access to health care without acknowledging that most of the uninsured don't have any savings in the first place. And now they're saying that a program that played virtually no role in the credit market meltdown is, in fact, entirely responsible.

I mean, it kind of sounds like a reasonable point of view until you look at the facts, listed in the excerpt above, but these conservative blowhards usually don't concern themselves with facts.

Anyway, like I said, I thought it was no big deal, that nobody would take the bait. Until a buddy of mine at work, one of the more well read and thoughtful fellows there, spouted out the same argument during a quick discussion some of us were having last week about the crisis. He changed his mind when I pointed out that these subprime loans were aggressively marketed, but if this conservative attempt at misdirection sucked him in, it's a fair assumption that lots of other intelligent people are buying the bullshit, too.

Really, as far as I can tell, the main culprits here are the people who bundled these bad loans into securities packages for resale on the market. If that hadn't happened, my guess is that the crisis would have hit only the assholes who issued the loans in the first place. Well, okay, I blame the morons who bought these "securities," too, but none of these people live in the ghetto--they all wear suits and have nice houses, just like the Republican assholes on TV who are trying to shift the blame for their reckless misguided harsh free market fundamentalism.

Will we ever see a day when most Americans are trained enough in argumentation, and informed enough about the facts, to shoot this shit down the moment they hear it? Probably not. At least, not as long as public education is about quashing critical thinking rather than nurturing it.