OT: Glennzilla just ripped McMegan a new one.

When all else fails, Republicans turn to the tried and true: Its all the fault of those lazy blacks!

As you point out the weakening of the CRA is partially responsible for the melt-down: people can't afford the "balloon" payments of their mortgages even as they were fine before.

Many people were steered into subprime mortgages because, well, redlining is alive and well folks. And subprime mortages is what some people could get -- even if they could afford to pay for regular ones.

But remember, sub-prime mortages are only the tip of the iceberg. There are two larger issues:

(1) our criteria for awarding credit (based on proprietary scores computed by for-profit agencies and subject to corruption by the effects of identity theft, etc -- and which people have to go through hoops to obtain information about themselves!) are messed up. Not only is credit extended to people who cannot afford to pay, but loans people can afford to pay back are refused (so people put stuff on credit cards, etc., and have to pay more interest). How many people now defaulting on subprime mortages could have afforded to pay a regular mortgage but were turned down? If that's what's happening, I have no tears to shed for the financial industry ...

(2) in order for X to borrow money, Y has to have money to lend. I know some smarty-pants will accuse me of committing some fallacy here, but I'll ask the question anyway: who has the money to lend and why? Fundamentally the mortgage crisis, the credit crunch, etc., are social security crises and should be treated as such.

We need to think of investments are products meeting a need for social security. Since there is a wide-spread perception that social security is failing (follow the money, folks -- who's pushing that view and who makes money off of increased market volume?), middle class baby boomers are too nervous about having enough money to retire so they "invest" rather than "save" the money -- which means there is simply more money available to mortgage companies than to traditional banks. It also means in general that there is a demand for investment vehicles that is fueling a commodification of the economy in general -- driving up prices on food-stuffs, etc., opening up one speculative bubble after another, etc.

If we do not address the demand for investments (IMHO, the record market volumes of this era are not good things -- it's just a recipe for chaotic flows in the markets: it's like a traffic jam when the roads have too many cars on them) with a more robust social security and reinvigoration of the New Deal, we'll see one crunch after another.

After all, that is how our economy worked before the New Deal, anyway.

So why aren't the Dem candidates being Democratic (in the image of FDR) and seeing the big picture?

OK, but what would you say to those who are opposed to both industry regulation and regulation of our currency via the Fed? They've got a pretty good case to make that it was artificially low interest rates that encouraged the subprime lending spree:

http://www.forbes.com/2007/12/03/predatory-business-act-oped-cx_yb_1204predatory.html

I'm sorry, I don't buy that this bubble was a result of insufficient regulation. Housing prices skyrocketed in nearly every country in the world, in many places much more than in the US(See Ireland or Greece). And now each of these countries are facing economic issues as a result.

Notice, I'm not talking about the US's export of worthless bundled securities that is currently wiping out European banking profits. I mean that the actual prices of homes in the rest of the world skyrocketed.

And interestingly, the US did not really invest large amounts into the international real-estate market. These international housing prices skyrocketed as the result of domestic investment.

If this was the result of regulation, then why did the same result occur across many different regulatory regimes?

So what caused this crisis? The mathematical models that quants used to quantify risk were wrong(Or more correctly, investors placed too much faith in fundamentally flawed techniques). These models are used by quants around the world, and real estate was the first asset to break it.

That's about it. It was a math error. There is nothing partisan at all about it. This wasn't about some anti-red lining law, and it certainly had nothing to do with Glass-Steagall. Since fundamentally, we were dealing with risk in an incorrect way, we were bound for a crisis of some sort, even if it wasn't housing.

Some of these proposed regulations might make sense, it depends on the specifics of the regulations. But I don't see how any regulator or regulation could have stopped this crisis.

I'm sorry, I don't buy that this bubble was a result of insufficient regulation. Housing prices skyrocketed in nearly every country in the world, in many places much more than in the US(See Ireland or Greece). And now each of these countries are facing economic issues as a result.

Notice, I'm not talking about the US's export of worthless bundled securities that is currently wiping out European banking profits. I mean that the actual prices of homes in the rest of the world skyrocketed.

And interestingly, the US did not really invest large amounts into the international real-estate market. These international housing prices skyrocketed as the result of domestic investment.

Your example has nothing to do with what's going on the USA. Our problem isn't increased house prices, it's bad loans. You even admit that the increase in housing costs in other countries has nothing to do with the USA, and that the European banking crisis has nothing to do with increased housing costs in those countries.

To say that you're arguing apples and oranges is to imply way too much of a connection, since both are fruit. The examples you give to suggest that a lack of regulation isn't a prime culprit have absolutely nothing to do with one another. They're not even in the same plane of existence.

It wasn't that the housing prices came down, its that the financial sector was acting as unregulated banks based on bundling of mortgage securities. And these were valued on bad risk asessments and were insured through parties that could never really afford to cover large downturns.

My point, was that the same incorrect models that lead investors worldwide to overvalue housing, lead to inaccurate valuations of mortgage securities and more obscure investment vehicles.

Of course the increase in foreign housing costs had nothing to do with the US. But now, housing prices there are collapsing, and these countries are facing economic crises similar to ours (See Ireland).

Our problem was that loans were justified on the basis of irrationally high housing prices. Had housing prices held steady as the market incorrectly assumed, there would be no problem.

This is precisely the same train of events that occurred in other countries.

Recessions happen from time to time. Every time a recession occurs, every liberal in the country claims that the recession proves that the world is coming to an end (in this case, "the economy is in a meltdown") and what we really need is more government regulation.

The economy is not in a meltdown, and broken clocks are only right twice a day.

Recessions happen from time to time. Every time a recession occurs, every liberal in the country claims that the recession proves that the world is coming to an end (in this case, "the economy is in a meltdown") and what we really need is more government regulation.

The economy is not in a meltdown, and broken clocks are only right twice a day.

"Our problem was that loans were justified on the basis of irrationally high housing prices. Had housing prices held steady as the market incorrectly assumed, there would be no problem."

No, the problem was inaccurate risk assessment. It seems unlikely to me that the biggest culprit there would be CRA related loans. I would assume that credit paperwork for anything fulfilling a federal mandate would be a requirement.

A larger problem was qualifying people for loans without any real credit work. A lack of such information *should* be a red flag to banks and brokerages buying up such loans, but they bought them just to pass them along to someone else and were in the process of doing so when they got brought up short by the rising default rate.

So, clearly, one suggestion I've seen-- make each party in the daisy chain retain a large portion of business on their own balance sheets-- could do something to hinder unnecessary risk taking. Without that kind of market for reselling crap loans, companies like Countrywide wouldn't have an incentive to keep making more and more of them.

Of course, if you're a NYC brokerage and you're sitting there knowing you have your crony in the Treasury Dept to bail you out and protect you from prosecution, then it's entirely likely that no regulation and no law will stop you from using whatever is available to fill your own wallets while you have the chance.

But this speaks to a larger problem in corporate culture where executives are not being held responsible for the long term stability of the corporate entity, while personally making more money off them than ever before.

In terms of the global housing bubble, I would think this was fostered by low interest rates here and abroad. If I understand it correctly, money in Japan is practically free.

"Our problem was that loans were justified on the basis of irrationally high housing prices. Had housing prices held steady as the market incorrectly assumed, there would be no problem."

No, the problem was inaccurate risk assessment. It seems unlikely to me that the biggest culprit there would be CRA related loans. I would assume that credit paperwork for anything fulfilling a federal mandate would be a requirement.

A larger problem was qualifying people for loans without any real credit work. A lack of such information *should* be a red flag to banks and brokerages buying up such loans, but they bought them just to pass them along to someone else and were in the process of doing so when they got brought up short by the rising default rate.

So, clearly, one suggestion I've seen-- make each party in the daisy chain retain a large portion of business on their own balance sheets-- could do something to hinder unnecessary risk taking. Without that kind of market for reselling crap loans, companies like Countrywide wouldn't have an incentive to keep making more and more of them.

Of course, if you're a NYC brokerage and you're sitting there knowing you have your crony in the Treasury Dept to bail you out and protect you from prosecution, then it's entirely likely that no regulation and no law will stop you from using whatever is available to fill your own wallets while you have the chance.

But this speaks to a larger problem in corporate culture where executives are not being held responsible for the long term stability of the corporate entity, while personally making more money off them than ever before.

In terms of the global housing bubble, I would think this was fostered by low interest rates here and abroad. If I understand it correctly, money in Japan is practically free.

"Glass-Steagall made sense"

It did?

There are central bankers who disagree with you, like Christian Moyer of the Bank de France. He was quoted recently as saying that the Universal banking model common in Europe (and which Glass Steagall specifically prohibits) is what is going to allow the baking system there to ride out the problems.
The point being that if you have many lines of business than a cock up in one of them can be covered by the others.

"No, the problem was inaccurate risk assessment. It seems unlikely to me that the biggest culprit there would be CRA related loans. I would assume that credit paperwork for anything fulfilling a federal mandate would be a requirement."

Yes, I agree with you there. But the inaccurate risk assessment seems to be the underlying cause of the housing crisis. So I was trying to clarify and bring down to earth something I said earlier.

Otherwise, I'm pretty open to regulation that helps us go forward in the future, and there are plenty of good ideas to prevent moral hazard. But I don't believe that any previous proposed legislation would have helped.

The idea that loose money was responsible for the global housing run-up seems a bit incomplete. Why a run-up in houses, as opposed to stamps or stocks? It seems to me that domestic investors worldwide were using the same flawed investment strategies as us.

Fractional reserve banking + very low interest rate due to too much money creation + county slow growth policies + innovation in lending = banking problems.

Excuse me, but there WOULDN'T BE a "Sub-Prime" market if the Government hadn't FORCED the mortgage industry into it with not-so-subtle intimations of 'racism' and the bald-faced threats of greater regulation and higher taxes. Once again, ALL OF THIS can and SHOULD be laid at the door of knuckle-headed Liberal/Socialists and The Congress of the United States. Any other interpretation is pure politics.

Why a run-up in houses, as opposed to stamps or stocks?

You keep trying to see things that simply aren't there. Why not stocks? Perhaps it's because many Americans have at least a slight understanding that stocks are risky, Social Security privatization fetishists aside, of course. The lack of a run on stamps does not, I hope, actually require explanation.

Real estate, however, is supposed to be the only truly safe investment. "They aren't making any more land," after all. Also, owning a home is the single biggest part of achieving the "American dream."

The reason real estate bubbled like it did is because the US government and the Fed, after 9/11, both intentionally structured their policies to make buying real estate attractive. Bush specifically set out to make our economy's engine a combination of real estate investment and consumer spending. Both of those resulted in record amounts of credit, and voila! We have a credit crisis.

Ireland, however, doesn't have a credit crisis. They have an economy that's finally stopped growing at a record pace, due mainly to a slowdown in business with the US. But the levels of public and personal debt in Ireland are nothing like they are here, and there's also no nationwide problem with people of all income levels suddenly being hit with mortgage payments several times what they've been paying so far. In Ireland, if youy mortgage was Y/mo last year, it's pretty much going to be Y/mo this year, instead of Yx2/mo like in the US.

You just can't make a legitimate connection between the root causes of Ireland's current troubles and those in the USA, except for the previously mentioned slowdown in American business and investment. Ireland is hardly alone in that; presumably even countries that haven't conveniently seen a rise in housing costs will feel the effects of our economic problems.

Further, that nations with stronger regulatory regimes have troubles as well, or even that they may have trouble in their housing sectors, doesn't have anything to do with whether or not our regulatory environment needs changing. If another nation has a more regulated economy in all areas except in this particular one, it doesn't actually make the point you want. Many of the loans giving Americans the most problems were created fairly recently in order to get around current regulations and standards. If another nation is actually experiencing a credit crisis like we are - which you haven't proven at all - it's likely that their regulatory regime is incomplete as well.

Excuse me, but there WOULDN'T BE a "Sub-Prime" market if the Government hadn't FORCED the mortgage industry into it with not-so-subtle intimations of 'racism' and the bald-faced threats of greater regulation and higher taxes. Once again, ALL OF THIS can and SHOULD be laid at the door of knuckle-headed Liberal/Socialists and The Congress of the United States. Any other interpretation is pure partisan politics.

Voolfie, Ezra posted an argument of why he doesn't think that this claim is valid. Instead of arguing with Ezra's reasoning, you just repeated the initial claim. That doesn't make a lot of sense, and it just seems like you're mindlessly regurgitating talking points that were fed to you in an attempt to blame liberals for a recession that came on the watch of a Republican administration in order to deflect blame from your deviant ideology and in an effort to engage in reflexive hatred of the poor (known as "class warfare").

However, you do serve as an example to demonstrate that Ezra wasn't just making stuff up when he discussed the reflexive mindlessness of right-wingers in these cases.

Glass-Steagall worked? Then how come both Clinton and Obama oppose going back to it?

That law was repealed for a reason. it was outdated. Since when did so-called progressives become conservatives, standing athwart history and yelling "Stop!"

Anytime Congress tries to change regulation to account for changing times, you guys throw a fit.

Because, Adam, a lot of people you like to lump in with 'liberals' . . . really aren't. They're moderates, moreover, moderates of the pragmatic sort. Sometimes we do the conservative thing because it's what is justified by the facts on the ground, sometimes the 'liberal' thing.

Well, going back to Glass-Steagall is not on the table, and the only people who think it should be are significantly to the left of the mainstream of the Democratic party.