Two weeks into Occupy Wall Street protests, movement is at a crossroads

So.. you argued that 70% of the bad loans were the result of CRA which leads to your conclusion that it created a moral hazard.

I point out that 70% of the loans were made by entities NOT subject to the CRA.

Even though the facts you used to make your conclusion are wrong, you claim that even IF the totals were 30% you would reach the same conclusion.

It looks to me like you are just adjusting the facts to suit your conclusion Robert and then claiming the real facts are a red herring because they don't directly contradict your conclusion.

This strip is a warning against the true danger of capitalism: government intrusion designed to effect an outcome not supported by the market.

If a corporation engages in all the practises and arguments followed by Calvin, it will fail. No one will buy unappealing lemondade from a jerk for $15.00 a glass.

That corporation becomes a problem, only when and if the government steps in and uses tax dollars to save it from itself and market forces.

The government, not the corporation is the problem.

Capitalism si! Crony capitalism no!

Finn dAbuzz wrote:

This strip is a warning against the true danger of capitalism: government intrusion designed to effect an outcome not supported by the market.

If a corporation engages in all the practises and arguments followed by Calvin, it will fail. No one will buy unappealing lemondade from a jerk for $15.00 a glass.

That corporation becomes a problem, only when and if the government steps in and uses tax dollars to save it from itself and market forces.

The government, not the corporation is the problem.

Capitalism si! Crony capitalism no!

I'm sure you'll agree with me that the only way to keep the gov't from stepping in is to bar the corporations from buying our gov't, as they essentially have now. Otherwise it will never end.

Sorry to upset your certainty, but I don't agree with you...for a number of reasons.

First and foremost is that I'm not ready to accept that government officials are so inherently venal that the only way to assure that they resist temptation is to make sure it never crosses their paths. I didn't think you were that cynical Cy.

Secondly, we have all the laws we need to prevent and prosecute flat out bribery and corruption, and there are already laws on the books intended to regulate the influence donors have on elected officials. If they are not working, I don't know why you think even more proscriptive ones will.

Thirdly, while I see that campaign donations have the potential for creating mischief, I also think they are a perfectly legitimate way for constituencies to participate in the political process. It is up to the person receiving the donation, not the donor, to keep the process above board.

Fourthly, not all undue government influence in the marketplace is a result of quid pro quo arrangements.

Finally, I might give some thought to what you suggest if I thought it would be applied across the board. The problem of purchasing political influence is not limited to corporations. It applies to all special interest groups. One very significant non-corporate special interest is Labor, and it’s very rare that anyone railing about corporations buying the government complain about the same practice by Unions.

There is no answer to the current problem that doesn't mean more regulations. Don't you agree?

Again, I'm afraid not.

I think there are too many regulations, not too few. Perhaps there are a few regulations that we don't have but nevertheless could benefit from, but we don't need a net increase.
Cycloptichorn

You are (perhaps intentionally) missing the point. The principal moral hazard arose from the widespread securitizing of mortgages of all kinds, thereby quickly relieving the issuers of any risks associated with them and, at the same time replenishing their caqpital so they could make more loans. Fannie and Freddy were principal players in this market, and, because of their implied government guarantee, could borrow at very low rates and direct abnormally high levels of capital to an already expanding bubble.

70% of the sub-prime mortgages were held by companies that the government required to have increasing quotas of loans going to sub-average income homes.

The 70% claim included more regulation than the CRA. I've already told you this but you persist in ignoring it.

Quote:

The 70% claim included more regulation than the CRA. I've already told you this but you persist in ignoring it.

Of course.. it's some regulation only you are aware of but the government hasn't published it anywhere.

georgeob1 wrote:

You are (perhaps intentionally) missing the point. The principal moral hazard arose from the widespread securitizing of mortgages of all kinds, thereby quickly relieving the issuers of any risks associated with them and, at the same time replenishing their caqpital so they could make more loans. Fannie and Freddy were principal players in this market, and, because of their implied government guarantee, could borrow at very low rates and direct abnormally high levels of capital to an already expanding bubble.

So you are arguing for MORE government regulation?
Fannie and Freddie were not the principle players in the subprime market but don't let that fact get in the way of your desire to make them such.

Issues › Economy › Housing
Faulty Conclusions Based on Shoddy Foundations

Based on work done by his AEI colleague Edward Pinto, Peter Wallison, minority member of the Financial Crisis Inquiry Commission, concludes federal affordable housing policies were the driving cause behind the financial crisis, causing a decline in underwriting standards that triggered the U.S. housing bubble. Unfortunately, Pinto’s research findings relied upon so heavily by Wallison and others are false.

By David Min | February 8, 2011

Download the full report (pdf)

Download the introduction and summary (pdf)

Download the report to mobile devices and e-readers from Scribd

The congressionally appointed and bipartisan Financial Crisis Inquiry Commission last month released its final report on the causes of the U.S. financial crises in the first decade of the 21st century. This carefully researched report provides a balanced and thoughtful explanation of the causes of the recent financial crisis, blaming a range of policies implemented by both the Clinton administration and the Bush administration. Like the previous staff reports issued by the FCIC, this final report is excellent and well worth reading.

Alas, this final report was issued only by a majority of the FCIC members, as the minority members released a dissent that concluded a narrower set of issues, including federal affordable housing policies, were the driving cause behind the financial crisis. Notably, FCIC minority member Peter Wallison, a senior fellow at the American Enterprise Institute, a conservative think tank based in Washington, D.C., issued his own separate dissent. Based on work done by his AEI colleague Edward Pinto, Wallison concludes federal affordable housing policies were the driving cause behind the financial crisis, causing a decline in underwriting standards that triggered the U.S. housing bubble.

Wallison’s conclusion that affordable housing policies were the proximate cause of the financial crisis is integrally based on the claim that “[a]s a result of [U.S. government housing] policies, by the middle of 2007, there were approximately 27 million subprime and Alt-A mortgages in the U.S. financial system—half of all mortgages outstanding—with an aggregate value of over $4.5 trillion.” How does Pinto come to these conclusions? Wallison succinctly summarizes Pinto’s findings in a January 3, 2011, Wall Street Journal op-ed:

By 2008 half of all mortgages in the U.S.—27 million—were subprime and other high-risk loans. … Because of their affordable-housing requirements, [Fannie Mae and Freddie Mac] bore the risk of default on 12 million of these mortgages. The Federal Housing Administration (FHA) and other government agencies insured or held an additional five million. And banks under the Community Reinvestment Act, and other mortgage providers under a Department of Housing and Urban Development program, made another 2.2 million. Thus, more than 19 million subprime loans [out of 55 million total outstanding loans] were the responsibility of taxpayers, courtesy of the federal government’s housing policies.

As Wallison clearly indicates in his FCIC dissent, all of the data on the number of outstanding subprime and Alt-A mortgages outstanding, and their distribution, that he relies on to form his conclusions come from Pinto’s research.8 Pinto’s findings also were widely circulated among the public and key policymakers. Pinto’s work also is cited by prominent conservatives, including U.C. Berkeley Haas Business School Professor Dwight Jaffee, New York University Professor Lawrence J. White, Columbia Business School Professor Charles Calomiris, Cato Institute Senior Fellow Richard Rahn, and Reuters columnist James Pethokoukis.

Unfortunately, Pinto’s research findings relied upon so heavily by Wallison and others are false. Pinto’s work is based on a series of faulty assumptions and serious methodological flaws. Pinto’s controversial conclusion that federal housing policies were responsible for 19 million high-risk mortgages is based on radically revised definitions for the two main categories of high-risk mortgages, subprime loans and so-called Alt-A mortgages, which refer to loans with low documentation of income and wealth. Importantly, these revised definitions are not consistent with how the terms subprime and Alt-A are used for data collection, as this paper will demonstrate.

As a result of his dramatically expanded new definitions that are not used by other leading scholars, Pinto’s findings on the extent of subprime and Alt-A exposure are extreme outliers among mortgage market analysts. Pinto’s claim that there were 26.7 million subprime and Alt-A loans outstanding (out of roughly 55 million total) as of June 30, 2008, is exponentially higher than other estimates. In a 2010 report, the nonpartisan Government Accountability Office, the research arm of Congress, found there were only 4.58 million subprime and Alt-A mortgages outstanding at the end of 2009, less than one-fifth of Pinto’s estimate.

Similarly, Pinto’s claim that 19 million, or 72 percent of all “subprime” and “Alt-A” mortgages were attributable to federal affordable housing policies is far afield of the conclusions of other analysts. The claim is also difficult to reconcile with the actual data, which indicate the entire federal government (including Fannie and Freddie) owned or guaranteed only 32 percent of seriously delinquent loans despite holding 67 percent of all mortgages. Pinto’s claim that Fannie and Freddie were the primary driver of high-risk mortgages does not stand when the evidence is weighed accurately.

---

Pinto makes numerous other serious errors in his analysis. Case in point: In analyzing the influence of the Community Reinvestment Act, a 1977 antidiscrimination law that simply requires regulated banks and thrifts to lend nondiscriminatorily to low- and moderate-income borrowers and communities within the immediate geographic areas surrounding branch offices of a deposit-taking institution, Pinto includes a large quantity of loans that were not required by CRA or any other equivalent law or regulation. This mistake, coupled with some unsupported assumptions about the riskiness of CRA loans, produces a shockingly high estimate of 2.24 million “subprime” and “high-risk” loans attributable to CRA. This compares to a finding of 378,000 CRA-eligible loans originated during the housing bubble by other leading researchers.

Pinto also wrongly blames the affordable housing goals of Fannie and Freddie for the origination of Alt-A loans, which under his analysis account for 65% of the “high risk” mortgages attributable to Fannie and Freddie. In fact, these Alt-A loans (either according to the normal usage of “Alt-A” or Pinto’s newly invented definition of “Alt-A”) would not have qualified for the affordable housing goals.

As this paper will demonstrate, these and many other similar methodological flaws are fundamentally embedded in Pinto’s research, making his conclusions fundamentally unreliable and essentially useless for the purpose of understanding either the causes of the housing bubble or the high rates of delinquencies that have occurred during the housing downturn. Yet based in large part on the inaccurate and misleading data peddled by Pinto, many policymakers are advocating inapt and often counterproductive solutions to the financial crisis.

You may not want to rely your argument too heavily on the Pinto work before jumping all over Parados' ass.

Quote:

Banks, Fannie and Freddie are subject to the CRA. Since those entities didn't create the majority of the subprime loans there is no way that 70% of the loans were held by companies subject to the CRAs. Less than 50% is NOT 70% in my world.

The 70% did not just reference the GSEs, if you want to be pedantic you should at least try to compare apples and apples and not compare it to different metrics and pretend you've indicted them.

So.. you argued that 70% of the bad loans were the result of CRA which leads to your conclusion that it created a moral hazard.
I point out that 70% of the loans were made by entities NOT subject to the CRA.
Even though the facts you used to make your conclusion are wrong, you claim that even IF the totals were 30% you would reach the same conclusion.

It looks to me like you are just adjusting the facts to suit your conclusion Robert and then claiming the real facts are a red herring because they don't directly contradict your conclusion.

Quote:

The 70% claim included more regulation than the CRA. I've already told you this but you persist in ignoring it.

Of course.. it's some regulation only you are aware of but the government hasn't published it anywhere.

All the links to the study referenced in the following piece, et cetera can be found at the link.

http://www.americanprogress.org/issues/2011/02/min_pinto.html

I know about the opposing arguments and I even posted that very link you are recommending me to this thread yesterday.

But the range of numbers I have seen proposed even in refutation of Pinto are still very substantial figures. And this is why I've said to you all along that even if I cede all the quibbling over interpretation of statistical data it's still fundamentally a big number and this all seems like a deliberately diversionary way of arguing with me on his part.