Friday, June 26, 2009

Not the CRA's fault

Barry Ritholtz's The Big Picture today is a good bookmark, recapping and further debunking the Right's misplaced blame on the Community Reinvestment Act (CRA) for the housing bubble. This is his intro; you should read the whole piece.

Given how thoroughly the “CRA caused everything” meme has been debunked, you have to wonder why some poor souls are still pushing this discredited political talking point (other than as linkbait).

I’ve already spilled too many pixels debunking Phil Gramm’s attempt to shift blame from his radical deregulation to other parties (see partial list at bottom). Oh, and I dropped another 322 pages explaining the actual causes of the crisis.

And yet, these attempts at misplaced fault continue.

So this morning, I want to try a completely different approach — the opposite of our usual data driven, analytical framework. Rather than show more facts, data and specific details, instead, I want to do a little thought experiment.

Imagine, if you will, that the discredited far right meme is actually correct: Assume that the CRA was a prime cause of the mortgage, credit and housing related crises.

58 comments:

Mrs. Watanabe said...

It's clear that it is not CRA's fault. Union Bank did a lot of CRA loans, and the default rate of their CRA loans is only 1.6%, and this is in California.

http://www.santamariasun.com/commentary/2228/union-banks-are-not-public-troughs/

When you place politics into a conversation/argument, nothing but stupidity is the result.

Anonymous said...

It's Bush's fault. California's budget disaster is the result of Prop 13.

In fact, everything that Obama has to clean up is the fault of the Republicans and Fox Network.

The economy will recover as soon as the stimulus money begins to enter the economy and stimulates the next big boom: Green Industries.

Mrs. Watanabe said...

LOL

PeteR said...

Are there really very many who say CRA was the main cause of the crash? I've seen a lot of people claim it contributed, but who's saying it was the only or the main thing?

Anonymous said...

Barry Ritholtz is a liberal apologist and an Obama water carrier. This housing crisis belongs entirely to the dems and Obama in particular who promoted loose lending and irresponsible borrowing through the CRA and other liberal programs. This has all been pretty clearly established and rearguing it isn't going to solve anything!

Anonymous said...

Ugh - why are we bringing politics in to this blog -

Can't we stick only to real estate.

By choosing to live in Santa Monica, all of us have implicitly agreed to a certain political view. There is no room for debate here.

Back to real estate please

Anonymous said...

Look, forget the CRA. The CRA may have impacted Palmdale and Lancaster but it has had no impact at all here in Santa Monica

I was born and raised in Santa Monica. After leaving CA in 2000 for several years, I returned to find my community overrun with this property speculation insanity.

Ironically, even with a very strong combined income, wife and I cannot afford a home in the same neighborhood my gardener lived when I was growing up! He was a decent guy, and I am not making any judgments about working class vs. white collar- we are all just people trying to make it. It is just that I find it ironic that I now couldn't afford his house, even though I have earned an PhD, and my wife is leads a large organization. I actually went to my old gardner's house when I was a boy and purchased a couple of minibikes off of him. It was simple, a 1940's cookie cutter (with great landscaping!) off of Braddock by Centinela.

I wasn't born with a silver spoon in my mouth, and back in those days Santa Monica was a sleepy middle class town and we were not rich by any stretch. Today, I would love to live in the neighborhoods of Mar Vista, and when I returned to CA I envisioned purchasing a home around Braddock & Centinela. Of course this was before I came to terms with what an insane asylum the realestate speculators and out of town money had made the Westside.

What we didn't account for, and I can vouch for this having lived in several states outside of CA, is the "X Factor." Basically, I didn't take into account that a majority of people in states across the US would give anything, and I mean anything, to live in the Westside/Hollywood/South Bay areas. They migrate to SoCal looking for the "good life" and they bring their parents money and buy into the 90066.

These folks bought next to a sketchy housing project (Mar Vista Gardens), they bought next to old-school dudes who cannot even afford to fix and move the cars rotting in their front yards, or guys who live in dilapidated family homes because their blue collar pensions, are too small to keep up with the rising costs in these areas.

The X Factor-motivated buyers bought in these areas and paid top dollar (and, as we can see with the current "dead cat bounce" are still buying in these areas even as many people realize the market is correcting) even in the face of the horrible neighborhood characteristics . I suppose that they were looking for a slice of the California dream. To someone who grew up on the Westside, I didn't realize the power of the X Factor until I left town and returned.

Me and my wife are here because most of my immediate family still lives around this area. We would love to raise our children in the company of our extended family, however, we are giving the Westside another year (we have been renting for 4 years already) before we relocate to an area that offers a high quality of life (safe neighborhoods, good schools, fun things to do, etc.) and is affordable.

If is frustrating to deal with this process, but I'm not special and I'm not entitled just because I grew up in Santa Monica; if we move we will make a great life somewhere else. People have been priced out of their own neighborhoods for decades, so why should it be any different for me?

The X Factor keeps drawing people from all over the US (and the world!) to SM/Culver City/Mar Vista, and they are often willing to sacrifice all sanity to "afford" a home in these areas.

Sorry about the rant, but it was certainly encouraging to see a fellow native talk about our community and what it has turned into.

Anonymous said...

Liberal: "By choosing to live in Santa Monica, all of us have implicitly agreed to a certain political view. There is no room for debate here.

Back to real estate please"

That's what I like about liberals, they are so accepting of different opinions and views, as long as those views agree with the liberals.

1. We've all "chose to live in Santa Monica"???? Wow, I didn't know that 90066 was part of Santa Monica. Or Venice. Or Westwood.

2. "There is no room for debate here"??? I thought that this is what blogs were for.

3. "Back to real estate please"--real estate has EVERYTHING to do with politics. The bust and sinking economy is a function of politics.

B. Hussein Obama's (he has Muslim roots--just listen to his recent speeches) economic plan is all politics. The Cap and Tax bill just passed in the House is all about politics.

The 25 billion dollar budget deficit for the State has everything to do with politics.

If the liberal democrats get their way, energy prices will soar and businesses and people who actually make enough money to pay income taxes will have their taxes increased.

The economy is sinking and this will absolutely affect Westside housing prices.

B. Hussein Obama and the democrats have plunged us into to debt so deeply that we'll never be able to pay it off.

RE blogs are so yesterday because we all know where prices are heading--DOWN.

And the future for our economy looks just as bad.

Anonymous said...

real estate blogs are so yesterday?

Why the hell are you posting on a real estate blog?

Go post at isteve or some other blog that handles politics

not here

PeteR said...

My last political comment here (I promise):

Bush owns part of this problem as well since he openly supported Freddie Mac lending to people with bad credit histories. Not just high-risk people, but *known* liabilities.

http://tinyurl.com/nbgx5v

To "anonymous" three posts up. I can sympathize with your grief about the "insane asylum" the area's become. I grew up in Pasadena and things have gotten like that here too. I've worked in Westwood for the past six years and would love to buy a house in the vicinity, but dang...

Anonymous said...

Uh - I am very liberal but even I have to admit that in retrospect the idea of moving a million illegals to los angeles wasn't too smart an idea. The cost of educating and providing healthcare to the children of the illegals will probably bankrupt los angeles county.

Darned if i know where we go from here - am sure glad i don't own any la county muni bonds - those might not be worth much after the bk

Anonymous said...

Please shut up about not wanting politics on this blog. Especially when the current economic situation is entirely political, and the housing crisis was brought on by over-regulation by liberals like you.

Anonymous said...

"... the housing crisis was brought on by over-regulation by liberals like you."

Yeah, right. Over-regulation, that's exactly the reason why we had a real estate bubble. That's the greatest nonsense I ever heard.

Just for your information (since one cannot assume you actually read financial news): the credit default insurance market was completely unregulated and (at the end) surpassed $45.5 trillion, more than double the value of the US stock market. That's now mostly evaporated. That should tell you something about unregulated financial markets.

Sometimes I wonder whether you live on the same planet as I do.

Anonymous said...

Anon from Pasadena can you talk a little about the market in Pasadena?

I am surprised to hear it said that the market in Pasadena is as unreasonable as it is on the West Side -

I have a budget to spend 1.0 million on a house - I can spend 1.0 without stretching and what that means is I can afford a small house on a 7500 sq foot lot in a good school district here in SM

I have been told that for 1.0 million I can get a small house on a BIG piece of land in Pasadena - basically have been told that land is much cheaper in Pasadena.

Can you, Mr. Pasadena compare what I get for my money in SM vs Pasadena?

Anonymous said...

Over-regulated in the sense that the market was pushed to loan to low-income people who couldn't afford it, and the lending agencies were forced to loosen their safe-guards on such loans! Both liberal ideas... both being compounded by your president and congress right now. This is going to be a very deep double dip if they get their way. Impeach!

Anonymous said...

"Over-regulated in the sense that the market was pushed to loan to low-income people who couldn't afford it, ..."

Did you actually read the blog posting?? It was exactly about debunking THAT right-wing myth. But facts don't matter to those of your ilk anyways.

And by the way- Obama is now YOUR president as well. That's the nature of democracy.

Anonymous said...

Yes I read the post, and all it proves is that Barry Ritholtz is a worthless liberal hack!

Anonymous said...

B. Hussein Obama isn't MY president. I didn't vote for the clown.

Of course the Democrats in Congress are trying to shackle our country with even more costly taxes in the name of global warming.

The economy is down and liberals want to make energy more expensive.

Great idea.

Liberals want to increase the cost of health care and ration it by making those who work pay for the healthcare of those who can't and won't get off their butts and work.

So Hussein Obama is going around the world apologizing for America while at home he works to redistribute the wealth of private citizens.

The economy of California is as dead as that has been singer who just died--what was his name?

Something Jackson, I think.

We've already entered the Twilight Zone.

Anonymous said...

12:29 PM said:

"Look, forget the CRA. The CRA may have impacted Palmdale and Lancaster but it has had no impact at all here in Santa Monica"

What?? The bubble was fueled by the massive increase in new home comstruction in places like the Antelope Valley, San Bernandino and Riverside Counties.

The CRA and all of the other "creative" financing instruments allowed millions of people to buy these new homes and older homes in marginal areas (e.g., Compton, Watts, etc.). Existing homeowners leveraged their previously modest homes for bigger and more expensive ones.

The prices in Santa Monica and the Westside only went through the ceiling because there was a constant flow of buyers coming up from below.

And there were lots of buyers who would not have qualified under the traditional lending standards that used to be the norm.

Everybody was acting like they were wealthy.

To say that the bubble that occurred out in Palmdale and Lancaster isn't relevent to Santa Monica is just naive and stupid.

BTW, "Westside" means more than Santa Monica.

Anonymous said...

Look, plenty of less educated, lower earning people were given mortgages over the past ten years - these less educated low earning people then went on to default

simple as that - anyone that encouraged the granting of mortages to uneducated low earning people shares the blame.

The people that said NOT to give out mortgages - the people that said that less educated low earning people should stay as renters - were the ones proven right

How many of the readers of this blog really went out of their way to loudly proclaim that less educated people and low income people should stay renters?
I bet that very few of you made that argument. It wasn't that popular

PeteR said...

Mr. $1 million, you will need to take into account the public school situation here, since nearly all public schools in Pasadena are what might be considered vibrant. Most people who can afford it send their kids to privates, and that'll add to your cost of living - typically something like 25K per year per kid.

As far as comparing SM and Pasadena, that's a complex question. Pasadena's got a much bigger spread between the cheapest and the most expensive. We've got near-ghettoes on one hand and areas full of beautiful non-McMansions on the other. I invite you to visit and take a look at Zillow.

Anonymous said...

I am not sure I understand what is being said.

Here in Santa Monica I know three families that could easily afford private school who choose to send their kids to Franklin

Franklin is an acceptable choice for many (not all) people

Are you saying that there is no equivalent to Franklin in Pasadena - not one single public primary school that everyone agrees is good enough to send kids to?

Also - apples to apples, I believe the price of land in pasadena is one half of what it is here

So land North of Montana (best part of Santa Monica) today costs nine million an acre while the equivalent land in the best part of Pasadena costs $4.5 million an acre

Is this true across the board - twice the land for the money

PeteR said...

Zillow could tell you more about cost/acre in SM vs. Pasadena, but I think it's safe to say that public schools here are not likely to be what you want. Strangely, this is particularly true of the better parts of the city. It's been that way ever since they started compulsory busing in the 70s.

Anonymous said...

Let's leave the politics out of it -

but I can't understand this fact pattern.

Santa Monica has disadvantaged students living in the Pico neighborhood and advantaged students living in Franklin.

at the primary school level there is no bussing of kids from Pico to Franklin and as a result people who buy $4 million houses in GRS sometimes feel ok sending their kids to Franklin

Meanwhile, Pasadena has a policy of bussing kids from the "Pico" of Pasadena in to the "GRS" of Pasadena for primary school. So no one who spends $4 million on a house in Pasadena feels ok sending their kids to the primary school.

Again, I don't want to praise or denigrate either SM or Pasadena or the judiciary, I just want someone to explain to me the logic behind this - how did this come about

Anonymous said...

Wow,considering that it was Westside Bubble that I think I first saw the 3 tier housing chart, it's a bit rich for you to link to Barry's article and say he's right. You should know of all people that it was the bottom of the housing market that had the most gains during the bubble and it was the same bottom tier that had the most losses. I could go on, but I'll just say that most people who are reading the CRA discussion are entirely missing the point. I find it funny how liberals are really closed minded, knee jerk, government does everything right all the time people. You only help us by acting like this.

PeteR said...

Steve Sailer says he would like to debate Barry Ritholtz on the issue of minority lending and the housing bubble (CRA or otherwise). That would be fun to see but I doubt Ritholtz would do it.

Anonymous said...

"B. Hussein Obama's (he has Muslim roots--just listen to his recent speeches)"

Alright, I'll bite and I'll give you the benefit of the doubt and assume you are not just another racist.

What does having Muslim roots or having Hussein as a middle name have to do with anything? You and other people on other blogs have been saying this since before the election, but I don't get your point.

It reads like you are thinking that if we only knew that he had a parent that was Muslim we wouldn't vote for him.

But, your conservative friends made that an issue during the election and we all voted for him anyway. So... what am I missing?

Anonymous said...

The data simply doesn't back up the claim that the CRA caused the housing bubble. $50 trillion in global wealth evaporated because some poor people bought too much good property? The subprime problem, or loans made to those with poor credit or weak incomes was only a tiny portion of this global mess: $.07 trillion vs. the $4.7 trillion in prime mortgages, for example. In fact, most of the subprime problems have already washed out. They were the first to default since many of these people were marginal to begin with.

How about some old-fashioned greed as the main reason for this housing bubble?

And I'm not even talking about the absurdity of the claim that a law passed 30 years ago could cause a housing bubble decades later. Something else must have happened, right? And if it was so ominous, why was the CRA a total non-topic during the eight-year presidency of you-know-who?

I think you're trying to shift the blame for this mess to the wrong group, and the wrong piece of legislation.

Anonymous said...

Same boat as you, Anon 12:29pm. SM lifer (spouse too), well-paying jobs both, and baffled to find ourselves suddenly in the land of the rich and famous. I knew the gig was up when I saw Oliver Stone walking down the street of my youth. What's amazing is that it all happened within the last 15 year or so. I remember SM houses for $229K in the early 90s. What I don't get is what is so uniquely attractive to these folks. I like it because I grew up here and have fond memories, but back then, the richies lived in Malibu & Bev Hills. It's weird to think that Bay Cities, Poncho's & Wildflour (the old locations @ Lincoln & OP), pre-trendy Father's Office--these places we enjoyed after quaffing a few beers--are what the millionaires want. Or maybe we had a slice of paradise and didn't even know it?

Anonymous said...

You had a fat slice of what the millionaires want. And didn't even know it.

Now you know it

Anonymous said...

I'm damn rich and all I want is some strange.

Anonymous said...

Uh - while you are joking around, the same people that just bankrupted california are now getting ready to bankrupt the whole country by providing free healthcare to all 20 million illegal immigrants. Thank you, Santa Monica liberals.

The rep from Sen. Robert Menendez, D-NJ office promised that he would make sure that “the useless barriers of citizenship would not be in this bill” and that he would make sure that they would use keywords like “streamline”…

It was La Raza, the Childrens Defense Fund and Senator Menendez from New Jersey, a representative from his office…

…Yes [they said they would get free health care for illegal aliens], these are my notes, Mark. They actually got up and said “Latino children need health care more than whites“. And then they would say things like “you must go out into your communities, use words like ’streamline’, use phrases like ‘all workers’ and ‘all families’,” because they said — and I quote — “If the American people find out that this bill is about giving health care to non-citizens, they will rise up against it.”

Anonymous said...

yes the same crowd that brought you CRA are bringig you more goodies

this blog is the place to discuss real estate prices - specifically where things are selling for today.

leave the politics to mother jones

Anonymous said...

"The rep from Sen. Robert Menendez, D-NJ office promised that he would make sure that “the useless barriers of citizenship would not be in this bill” and that he would make sure that they would use keywords like “streamline”… "

Funny, by copy-and-pasting from some radical right-wing website without providing context and explanation you rendered this contribution of yours exactly what it is: meaningless gibberish.

Anonymous said...

This is where Santa Monica republicans are born? This blog?

Anonymous said...

As an earlier poster said, We all live on the West Side of Los Angeles. Our politics are clear. There is no other location in the USA with a population of 500 thousand people with the same political views the way we have here.

Ignore the troll and get back to discussing real estate on the West Side. If you ignore everyone that brings up boring political stuff we can get back to real estate

Anonymous said...

"There is no other location in the USA with a population of 500 thousand people with the same political views the way we have here."


What? I know lots of conservative, Rush Limbaugh and George W Bush loving Republicans on the Westside.

You liberals really are crazy--you would erradicate those who differ from you in an instance if you had the chance.

Fortunately, us Republicans have more guns and ammo than you liberals.

Anonymous said...

yep, they are still posting away at the public library.

Anonymous said...

What public library is open at 9:59PM?

Wooster said...

Sweet, guns and ammo and republicans who admit loving George Bush and Rush Limbaugh in the same post. This is spiraling. Westside-bubble: time to post up some stats, so ths one drops down the page.

Anonymous said...

Ha.. Not the CRA's fault.. That is a good one.

Anonymous said...

"I know lots of conservative, Rush Limbaugh and George W Bush loving Republicans on the Westside."

Hahaha, the greatest joke- thanks, you made my day. In case you haven't noticed- you live in the Democratic epicenter of the nation.

"Fortunately, us Republicans have more guns and ammo than you liberals."

Actually, it's the other way around: by now, the Republican party has radicalized itself so much as to appeal to exactly one demographic only: angry white middle-aged to old males (think Limbaugh, Bush, Cheney). Fortunately for us, that demographics is slowly fading away by natural causes- as witnessed in the last election.

Anonymous said...

Pretty funny everyone wishes to blame Obama for the current financial crises. Blame him for dealing with it incorrectly yes but he didn't put us in this position.

We went from the largest creditor nation in 1980 to the largest debtor nation by 2009.

Pretty sure Republicans ran the show most of those years. Bush could have slowed down the housing bubble in 04, plenty of warnings including by McCain but Bush choose to keep the economy going to ensure his re-election.

Not to say the Dems are not responsible just not as much responsible. As far as Obama goes he continues to follow Bush's mis-guided economic plan. Which is leading us down a road of Financial Armageddon.

Illegal Immigrants are the reason for the current economic crises. I really don't even know how to comment on the absurdity of this statement except you are an idiot.


You want a bad guy to blame start with Goldman Sachs they continued to sell CDO's to investors while shorting the crappy product themselves. They at least new they were selling shit. Pretty sure not to many illegals working at Goldman.


I would imagine a large percentage of people who bought in the Westside between 03 to 07 would not qualify for a loan under today's lending standards.

The small flurry of of buying is based on a couple of factors. Low low interest rates moving up and some depressed prices. The truth is interest rates will rise in the coming years putting additional pressure on the housing markets. Unemployment will hit 13% in CA. This in combination with tightening credit standards will greatly reduce the number of buyers who will be able to purchase.

If you think home prices are low now wait a year. the pricing markdowns on the west side have just begin.

Wooster said...

Eh, maybe one more post about this topic. Folks, I worked in land development for single family residential for the last ten years. Our group bought, entitled, and sold land for 10,000 homes across Southern California and I can tell you that from my experience the CRA had nothing to do with it. It was pure capitalistic greed and zeal. We were out of control and most people actually thought this was sustainable.

With the hand over fist money we were making we never really considered the repercussions of our actions. TImes were just too good. All the CRA did was to allow a small percentage of the population to achieve a marginal number of sales. It barely moved the needle. This was so much bigger than that. Nothing could stop it. Cities jacked up fees, water was scarce, CFD's were in the way, materials prices were skyrocketing, yet somehow mortgage lenders, builders, and appraisers were able to get deals done at crazy prices. Most buyers were making good amounts of money. A large percentage of that money came from construction, mortgage lending, and related businesses. It was a self sustaining cycle, for awhile.

But it wasn't caused by the CRA, that's just some political agenda being spewed through the internet right now, a red herring, there's something else going on in the background with that. And now that I left residential real estate I really don't care what it is.

Anonymous said...

Last time I checked, Sarah Palin wasn't an old white male.

In fact, Sarah Palin is a smaller dress size, more attractive and turns more heads than any Democrat politician.

So much for the fallacy that conservative Republicans are only "bitter gun clinging, religious zealot males".

All the Democrats have is Hillary Thighs and Michelle "My Big Bum" Obama.

Of course there is Nancy Pelosi with her perma-smile!

Oh, and then there's that liberal radio talk show that has 5 listeners--what was it called?

Anonymous said...

Ah, but it's old white males who largely support Sarah Palin. You think she is the voice of republican youth? Tough argument to make.

speedingpullet said...

All the Democrats have is Hillary Thighs and Michelle "My Big Bum" Obama.

Spoken like a true guy ;-)

Obviously Foreign Policy and the West Wing of the WH are obsessing with body parts, as we speak.... after all a woman is only the sum of her visible parts, no?

Anonymous said...

"So much for the fallacy that conservative Republicans are only "bitter gun clinging, religious zealot males".

It only needs contrasting your wise statement with that of your comrade on here to prove that there might be some truth to this "fallacy" after all:

"Fortunately, us Republicans have more guns and ammo than you liberals."

Anonymous said...

"In fact, Sarah Palin is a smaller dress size, more attractive and turns more heads than any Democrat politician."

And that's your criterion for a good politician???

Anonymous said...

To all my liberal friends, please stop bad-mouthing Sarah Palin. If we're lucky they'll actually nominate her in 2012. Perhaps they'll even run Rush for VP.

Anonymous said...

Liberals don't think that Sarah Palin is a threat to them, that's why they savagely attack her every time she appears in public.

Liberals don't think that Sarah Palin has any influence or political power that's why they mock her and say that she's just white trailer park trash. And they make fun of her children.

That's right, Sarah Palin isn't a threat to the left.

BTW, I think that Michelle "my belle" Obama is ugly and her kids will probably end up on drugs and flunk out of high school. That's unless they get affirmative action scholarships to Harvard.

You know what they say about Ivy League blacks, they got there on the backs of better qualified whites and Asians.

Oh, please no phony indignation from the wealthy white liberals of the Westside. We all know that you moved to Santa Monica and PP to get as far as you could from blacks and poor Mexicans.

You tell your kids that "We don't associate with those kinds of people."

Schools are ranked on how many lower middleclass and welfare blacks attend--the lower the number of these inferior people the higher the rank.

Come on, just fess up all of you Westsiders.

Anonymous said...

don't feed the trolls.

I have seen this troll on other blogs - if you just ignore him he goes away.

don't take the bait - move on to the next thread

Westside Bubble said...

It seems the "liberal"-basher(s) here are incapable of actually rebutting Barry Ritholtz's argument.

Anonymous said...

As a Republican and a conservative (and those are not necessarily the same thing anymore!) I am embarrassed by the Republican morons who are posting here. Please, go find somewhere else, I agree with many of your points but I can't believe how poorly you express yourselves. You give the smart ones of us bad name. Go away.

Anonymous said...

I second that.

Anonymous said...

As a Republican and Conservative I am embarressed by humans in general.

However, because I am Conservative and Republican I support the right for free speech in every sense of the word.

To all Liberals and Conservatives, please keep your freedoms and post whatever you like.

Real REPUBLICANS appreciate the fact that we all do not agree nor do we express ourselves the same. REAL REPUBLICANS don't think we are smarter, we are just more fiscally and morally responsible.

PLEASE FEEL FREE TO POST WHAT YOU WANT AT ANYTIME.

Anonymous said...

don't feed the trolls.

move to the next thread

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