I understand. I think we agree on basic points, that the loans Fannie Mae had been buying for decades didn’t bring things down.
It was what happened, starting with the seed planted by liberals 1n 1977 by the Community Reinvestment Act.
Thanks for the civil discussion, dangus.
“It was what happened, starting with the seed planted by liberals 1n 1977 by the Community Reinvestment Act.”
The CRA regulated only commercial banks and S&Ls, deposit takers.
It had no power over the shadow banking world of mortgage brokers and pure mortgage lenders, investment banks and hedge funds. The shadow bankers generated and bundled an enormous quantity of high-risk high-yield mortgage paper during the bubble. When you add in the derivatives that they built atop this mortgage paper you are talking trillions of dollars.
The shadow bankers were lending to risky clients entirely because it made them a lot of money. The high risk loans meant high yields. The high-yield mortgage paper was bundled, tranched, and used as grist for the creation of derivatives. Due to the Commodities Futures Modernization Act of 2000 the derivatives market was entirely unregulated.
The CRA played a role but it only affected a small part of the subprime paper created during the bubble. And the CRA paper would have been conforming paper. If every CRA loan ever made had defaulted you couldn’t have brought down the credit markets.
By comparison the non-conforming shadow banking loans and their associated derivatives amounted to trillions of dollars. And when they began collapsing due to their disregard for traditional risk the numbers were big enough to affect all of the world’s credit markets. We shouldn’t kid ourselves about the causes of the bubble and its collapse, it wasn’t just the relatively minor contributions of the CRA.