Don't Blame Poor And Do See 'Inside Job'

It has been fascinating to observe the reactions of anti-regulation zealots to the film "Inside Job." Many — including Paul Sperry in his Nov. 18 column on this page, "10 Reasons You Should Not Waste Your Money On Film 'Inside Job,'" — have resorted to constructing a sort of alternate economic history of the past 20 years.

In this alternate history, the culprit behind the subprime mortgage meltdown and ensuing economic crisis wasn't deregulated investment banks or speculators taking absurd risks. Instead, it was the poor, aided and abetted by advocates like us at the Greenlining Institute who worked to get the less wealthy among us an even break.

Reading this alternate history is a bit like browsing the Flat Earth Society's Web site. It's fascinating and oddly compelling, and even has a sort of internal logic. But it doesn't match reality.

The lead villain in this scenario is the Community Reinvestment Act, which allegedly forced banks and other lenders to make risky loans to unqualified borrowers just because they lived in poor or minority neighborhoods. But CRA did no such thing.

Indeed, three quarters of those risky subprime mortgages were made by independent mortgage brokers or other institutions not subject to CRA. And banks subject to CRA were two-thirds less likely to offer borrowers the sorts of high-cost mortgages that forced too many homeowners into foreclosure.

This author is utterly ignorant, either through stupidity or through willfulness.

Let’s start here: “Indeed, three quarters of those risky subprime mortgages were made by independent mortgage brokers or other institutions not subject to CRA.”

Yup, but they were still threatened with lawsuits for “red-lining” if they didn’t make such mortgages. On top of that, the banks KNEW the paper they were being forced to underwrite was cr@p, so they offloaded as much risk as they could by creating “mortgage backed securities.” Now those looked good on paper, so everyone got in on the game, and the contagion spread. Then when the cr@p paper turned out to be, well, cr@p, the whole house of cards came crashing down.

So let’s say regs were put in place to kill of mortgage backed securities. What then? The banks would have found another way to offload this risk as long as they could, stopped issuing the cr@p paper and been sued out of existence (more properly nationalized) by the donks, or gone under.

And finally, bad paper issued by 1/4 of the institutions (the 1/4 the idiot author claims were the only ones subject to CRA) was still MORE than enough to have wrecked the whole system, maybe just a little slower. Again, what an idiot.

It ALL goes back to the CRA and its consequences.

A major front-page Wall Street Journal (WSJ) article on the subprime market appeared in print and online in October 2007. Their study analyzed millions of loans issued between 2004 and 2006 and found that subprime borrowers were not overwhelmingly low-income residents of inner cities.

Subprime lending, or what the WSJ article authors preferred to call “high-rate” lending, soared in middle class and wealthier communities. This enabled more affluent buyers across the country to purchase expensive homes for which they could not have qualified under conventional lending standards. The study found that high-rate (i.e. subprime) loans issued to those earning $300,000+ climbed 74% in 2006 over the previous year. Since the average amount of these loans was only $158,000 nationwide, many of them were clearly piggyback second liens in the more expensive metro areas. The authors pointed out that 22% of all mortgages originated in 2006 were piggyback second liens (up from only 12% in 2004).

39% of subprime loans originated in 2006 went to “upper income” borrowers. Only 8% of these loans were taken by “low-income” borrowers. The two largest groups of subprime borrowers turned out to be single males (32%) and single females (32%) without any mortgage co-applicant.”

Single males and single females. Realtors?

Speculation overlooked as one of the major causes of crisis.

“The media has almost completely overlooked one of the most important aspects of the housing debacle. What has been disregarded is the key role that investors and speculators played in creating the housing bubble and exacerbating the collapse. […]

In 2004, 23% of the 7.7 million existing residences sold throughout the country were purchased as investments rather than to be owner-occupied. This was up from 22% the previous year. Investors bought 28% of all existing homes sold in 2005, 22% of all those sold in 2006, and 22% of those sold in 2007. This means that during the four bubble years of 2004-2007, roughly 7 million speculators bought existing residences for investment, not to be owner-occupied.

Refinancing soared in the three bubble years of 2005-2007. Freddie Mac figures show that homeowners pulled a total of $820 billion in cash out of their primary residences through refinancing in these three years. It seems safe to extrapolate from those NAR surveys that a sizeable percentage of these homeowners used some of this money to purchase one or more investment properties in 2005-2007.”

1/4 of the houses sold during 2004, 2005, 2006 and 2007 were to speculators, not owner-occupiers, something rarely talked about. Many people refinanced their existing residence, then bought 2, 3, 4…..sometimes 8 houses.

I agree with this article. It’s shocking to me how many people defend the bail outs for the banks or believe Acorn took down the whole system yes Acorn contributed to it but they were a bit player as you pointed out.

They don’t have Acorn in Ireland yet that’s the reason for the Irish collapse the banks debt.

The Banks created those risky loans out of greed plain and simple. It isn’t just in the US they sold them all over the globe. In Ireland for example that bailout the Irish people will be forced to pay $50,000 per household to pick up the banks bad debt.

To make matters worse the Fed lent money to their bank under the bailout while American banks were left to fail and are still failing. Looks to me like they got to wipe out their competition.

Iceland’s another example but they tossed out their govt. refused to bail out the banks and are now on the road to recovery.

Funny thing those same greedy banks who invented those toxic loans, i.e., liars loans, etc. also supported Acorn and Obama.

US taxpayers have already lost Billions on the bank bailouts because of the banks greed and that’s not counting all the bad loans they sold/off loaded onto taxpayers via Fannie/Freddie it could end up in the Trillions.

Taxpayers Lose $2.3 Billion with CIT Bankruptcy

http://www.propublica.org/article/taxpayers-lose-2.3-billion-with-cit-bankruptcy

U.S. Treasury Hid $40 Billion in AIG Bailout Losses

http://publicintelligence.net/u-s-treasury-hid-40-billion-in-aig-bailout-losses/

http://www.nytimes.com/2010/10/26/business/26tarp.html?_r=1

The measure, initiated in Jan. 2009 to stimulate the flow of credit and keep household borrowing costs low, led the nation’s central bank to purchase more than $1.1 trillion in mortgages packaged into the form of securities. The mortgage bonds are backed by Fannie Mae and Freddie Mac, the twin mortgage giants now owned by taxpayers.

Deutsche Bank, a German lender, has sold the Fed more than $290 billion worth of mortgage securities, Fed data through July shows. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.

More http://www.insurancemaking.com/business-general/55112-fed-opens-books-revealing-european-megabanks-were-biggest-beneficiaries.html

Ireland’s Fate Tied to Doomed Banks

Up to €50 billion—nearly $50,000 for every household in the Emerald Isle.

A failed banking sector that Ireland’s government can no longer rescue on its own. Ireland is in the midst of a real estate bust that could trump even the ruinous downturns that turned parts of southern California and Nevada into suburban ghost towns, with home-grown banks stoking it all. Now, those banks are trying to manage catastrophic losses. The Irish government has effectively nationalized the nation’s biggest banks by guaranteeing their debt, which would be akin to the U.S. government taking over Citigroup, Bank of America, J.P. Morgan Chase and Wells Fargo.

That means the Irish government is also on the hook for the losses those banks endure—which have risen far beyond initial estimates, and may have a lot farther to go. So far, the Irish government is obligated to cover losses amounting to 175 percent of Irish GDP

http://finance.yahoo.com/news/Why-the-Irish-Crisis-is-Going-usnews-4028366968.html?x=0

FDIC’s ‘problem’ bank list grows to 860

http://www.bizjournals.com/sanfrancisco/news/2010/11/23/fdics-problem-bank-list-grows-to-860.html

Barack’s Wall Street Problem is Now America’s

http://www.noquarterusa.net/blog/2008/09/21/baracks-wall-street-problem-is-now-americas/

JPMorgan CEO Jamie Dimon Donates Serious Cash to Democrats

http://www.opensecrets.org/news/2009/07/jpmorgan-ceo-jamie-dimon-donat.html

JP Morgan gives ACORN Millions

http://www.nlpc.org/stories/2009/08/10/acorn-funder-jpmorgan-chase-doesn%E2%80%99t-look-good-new-madoff-book

Bailed Out Citigroup Won’t Rule Out Giving More Money to ACORN

http://www.cnsnews.com/news/article/59443

Bailed Out JPMorgan Chase Funds ACORN

http://www.newsrealblog.com/2009/08/24/bailed-out-bank/

No, The Big Banks Have Not “Paid Back” Government Bailouts and Subsidies

http://www.zerohedge.com/article/no-big-banks-have-not-paid-back-government-bailouts-and-subsidies

The producer of “Inside Job” (which is a movie I do want to see) made a good statement at the Oscars. To paraphrase: “It’s been 3 years since we’ve had this massive case of financial fraud and no one has been prosecuted.” Why? Obama needs to explain why his campaign donors are being given virtual immunity.

The complicit media says nothing about this.

http://www.youtube.com/watch?v=mpz5DVwnbnk

When Obama appointed ex Wall Street sleazebag Rahm Emanuel as his CoS you could see this travesty coming our way. Taxpayers paid and these NYC bankers got rich again courtesy of the 50 state taxpayers and Federal Reserve (taxpayer again).

If taxpayers got back the many billions that they the fraudsters and the corporate entities owe us, it would make a huge dent in our deficits.

CitiGroup was essentially bankrupt and under new ownership which meant there should be no carry forward tax losses to offset income. But the US Govt gave them a waiver to use many billions in these carry forward illegal tax losses, that should have been they will pay no income tax in the forseeable future meaning that the government will make no money off the deal.

http://www.americanbankingnews.com/2009/12/17/us-queitly-concedes-billions-in-tax-benefits-to-citigroup-nysec/

Thanks for the information I would like to see that myself. There are a lot of programs that people are not even aware of put in place by the Fed. and the bankers that are mainly benefiting are the global banks. The same banks that helped obama get elected, the same banks who are into Sharia financing, the banks who charged our service members outrageous illegal fees and illegally foreclosed on some of them. What we have is an oligarchy.

Check out these programs...

Wall Street firms earn high profits with Uncle Sam’s backing

The financial disaster of continuing to bailout commercial real estate through the shadows of Federal Reserve jargon. Why you haven’t heard of this trillion dollar bailout.

http://www.mybudget360.com/financial-disaster-bailout-commercial-real-estate-through-the-shadows-of-federal-reserve/

Unlimited credit for GSEs seen as backdoor bailout

http://www.reuters.com/article/2010/01/05/us-usa-housing-bailout-idUSTRE6044YU20100105

No, The Big Banks Have Not “Paid Back” Government Bailouts and Subsidies

http://www.zerohedge.com/article/no-big-banks-have-not-paid-back-government-bailouts-and-subsidies?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+zerohedge/feed+(zero+hedge+-+on+a+long

And now who did these banks support?

Barack’s Wall Street Problem is Now America’s

http://www.noquarterusa.net/blog/2008/09/21/baracks-wall-street-problem-is-now-americas/

JPMorgan CEO Jamie Dimon Donates Serious Cash to Democrats

http://www.opensecrets.org/news/2009/07/jpmorgan-ceo-jamie-dimon-donat.html

Citibank Top Donor to Obama Inauguration

http://www.newsmax.com/InsideCover/citibank-obama-donors/2009/01/15/id/327689

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