Superimposable.org

Update: a recent article in Slate covers the CRA in more detail

The old KoolAidMan recently exchanged emails with a republican friend of mine who suggested that the economic collapse is the fault of the  Community Reinvestment Act-- so briefly check that out— and then go below for what has really gone so horribly wrong… Complete with a Lindsay Lohan reference!

Redlining and the way that equal lending works in practice are  a red herring—because many areas that would have been redlined in the past (for example, the east end of Uniontown, PA (lower income primarily African-American neighborhood) have median home prices that are nothing (22,000 in the east end for example)— and borrowers still have to meet creditworthiness requirements, and are still constrained by the value of the loan.–even low doc and no doc loans still had requirements— some required bank statements to show income, or a two year history of rent receipts (all easily faked, but brokers who wanted to make cash were complicit, and in the case of major lenders like countrywide–encouraging the practices)

Our president’s failed idea of an “ownership society” tried to push people into home ownership, control over their own retirements, “choice” in the medicare drug benefit, etc…. has been disastrous—- yet, bush’s ownership society was only a small part of the problem.. taking all regulation off of derivatives and debt swaps–something the GOP slipped into an 11,000 page omnibus spending bill that was being passed on a Friday afternoon— that’s the center of the crisis, it allowed hedge funds to write debt swaps, many of whom did so through thinly capitalized dummy corporations—when the lenders started facing defaults and sought to collect on the swaps–they found out that hedge funds moved the swaps to companies who couldn’t pay out on them (swaps are essentially insurance policies, a hedge against losses)—then the banks (who were stupid for buying ‘insurance’ way below market value from hedge funds instead of insurers…)– then the banks were in trouble with the bad mortgage backed securities and started getting ass fucked on their balance sheets…

So yes, these companies wrote horrible loans, but they *thought* they had adequately hedged to cover expected defaults and losses…

–deregulation, which occurred on Bush’s watch, and has been one of McCain’s career long goals allowed this mess to happen— many subprime borrowers weren’t in ghettos… they were speculating and house flipping, because brokers and lenders believed that the borrowers would end up with equity, so who cares if they have the income to back it up— there were tons of low doc and no doc jumbo loans written— that is insanity at its finest— even warren buffet referred to swaps as “financial weapons of mass destruction”— when you have financial instruments so complex that the execs can only pray the accountants explained it right–and greedy hedge fund managers willing to collect premiums without ever bearing the risk of having to make good on the obligations—something had to give.

I am all about personal responsibility and an economy that rewards wise risks and punishes unsound ones— but let’s face it— the average American isn’t the one who should be making many of the decisions– ie “how much house can i afford” –”where should i invest my retirement savings” –”what prescription drug should i take” etc— shifting risk onto the individual and doing it in the name of “freedom”–is insane— average people don’t have the education to begin to make these decisions, nor the sophistication to do the level of research and investigation necessary to make consistently sound decisions—especially not when a group who is way more sophisticated is selling snake oil and bullshit half truth claims like “the market always goes up, 11% a year over time” (ignores things like long periods of stagnation, or people unlucky enough to hit retirement age at the end of a market tumble)  or “real estate always appreciates” etc (not everywhere, and after upkeep and property taxes, real estate is in many cases nothing better than a forced savings account)— average people are swayed by the “advice” of companies who have a vested interest in selling them a loan or an investment—

the deck is stacked against joe shmoe, and he smiles because he has “choices”– (the same as the tobacco companies creating fake science to defend cigarettes, or the automakers resisting safety equipment—this nonsense that a free market finds balance is hogwash–especially when the consumer has limited choices (or no real choice because there are limited service providers and high bars to entry for new firms)— a free market is ripe for collusion and abuse by those who have the $$$—

The consumer who wants anything, a house, car, etc (things we deem more or less necessary to get along in the world)–has no choice– none of the automakers had seatbelts, etc—so the consumer couldn’t demand them, or pick the ones who did—or they were an option, and stretched thin consumers simply didn’t buy them because they believed in their own driving ability— we all know that is irrational–because it’s not just you on the road—so now we have mandatory safety features, and lives are saved and costs to society on the whole are reduced… and no manufacturer went under because of safety belts… costs that were passed on to the consumer, anyway— what happened there?

We decided that the American consumer (and big business) needed a nudge, a little protection from his own irrationality and stubbornness—

just like the current situation—people don’t know what loans and investments are good for them— and they are irrationally optimistic– interest only? sure, i’m gonna get that promotion, and then re-fi… 1/29 arm (adjustable rate, fixed rate for one year, then adjusts every year after)? sure! same deal, i’ll get my finances in order and re-fi!  it’s irrationality again and businesses foaming at the mouth to make a buck off of it… and providing the vehicles to help consumers commit financial suicide… exotic mortgage products—40 year loans, interest only loans, etc— those aren’t required by equal lending standards…. and u can’t get an FHA backed no doc or low doc loan… etc— the restraint and protection has to flow from somewhere, asking individual consumers and corporations to exercise it is like trusting Lindsay Lohan to only do a bump of your cocaine…

our economic system is based on division of labor— u get sued, you hire an attorney, because he specialized in the law, your car breaks down, you hire a mechanic, because he specializes in cars, you get cancer, you go to an oncologist–etc—

but what we’ve said about financial decisions that are just as complex is here, read this advertisement–i mean, prospectus, and pick what looks good to you— or with mortgages– even though we have established debt to income rations, appraisals, etc— we put out loan products that said “here, you tell us how much house you think you can afford”— it is fundamentally insane to suggest that people of average education can make decisions as well as pension fund managers/actuaries…. or as well as the credit rating and banking systems had determined—

at the end of the day, there has to be a floor of protections in place to keep abuses from happening–laissez faire capitalism has failed every time we’ve allowed it—whether it be what Ford, Carnegie and Frick did to the American worker, or this current financial mess— when you allow “the market” to run free—there will always be people who want to exploit it and make a buck any way they can— whether it be by back dating stock options, or selling and trading worthless swaps, making risky loans, selling bad investment products and ideas, selling “me too” pharmaceuticals, etc.

Because we have a split between those with the knowledge and position to take advantage of the average jackass and the average jackass himself— someone has to make sure the rules of the game are fair–and that is the role of government– to create a regulatory scheme that allows legitimate businesses and entrepreneurs the opportunity to use their wealth and talent to create more wealth— but that also protects the average American from abusive practices— paternalistic? maybe a little— but we acknowledge that there are some people who are better trained and better equipped to make decisions throughout our economy and society— whether it be engineers who come up with building codes or doctors, lawyers, or regulatory agencies like the EPA or FDA—

is government regulation perfect? no, it gets politicized when it shouldn’t be, and needs to have ethics rules to prevent abuses by the regulators…. but it is possible for the public at large to keep an eye on government in a democracy—in a total free market system, capital answers to no one…

it all comes down to a simple fundamental split—do you think that everyone truly has rights, or do you believe in pure social Darwinism, where the elite can rise up and use the masses as nothing more than grist for the money mill?

I think that everyone deserves a level playing field to start from, and the only way to make that happen is to hold business accountable and make it respect some minimum level of ethical behavior–there ave to be regulations and standards in place… we protect people from themselves with drug laws–because damage to themselves costs us all money—well we didn’t protect people from themselves, or big finance—and now it’s going to cost us a fuck of a lot more than some crackhead having a heart attack….

I’m just for protecting hard-working people and making sure they get back out of the economy something for what they put in.

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