Friday, April 27, 2012

Full (of it) Disclosure

It is a favorite tactic of the Housing Cause Denialists to claim that the Community Reinvestment Act had nothing to do with causing the financial crisis because, for one, CRA lending by banks was too small to matter much.  But Peter Wallison and Ed Pinto are on the job;
...there are plentiful data on commitments by large banks to make CRA-type loans in connection with applications to the Fed for permission to merge with small and medium-sized institutions between 1997 and 2007. In a 2007 report, for example, the National Community Reinvestment Coalition (NCRC) reported that in this ten-year period its member organizations had induced banks that were seeking merger approvals from the Fed and other agencies to commit almost $4.5 trillion in CRA-type lending. Press releases at the time these mergers were approved (available online) backed up this claim. After this report received publicity, it was pulled from NCRC’s website, though it is now available elsewhere on the web.[13] These report loans totaling $1.3 trillion made to fulfill prior commitments,[14] but determining the delinquency rates on these loans is impossible; banks have generally refused to make these data available, and the Financial Crisis Inquiry Commission (FCIC)—established by Congress to investigate the causes of the 2008 financial crisis—did not seriously attempt to investigate this issue.
Though that hasn't stopped the chairman of that commission, Phil Angelides, from claiming that he knows the figure to be small.  Nor that it was really not government sponsored enterprises and agencies that were responsible for the bulk of the problem.  Again, Wallison and Pinto refute the baloney;

Between 2002 and 2006, the private market for PMBS ['private' mortgage backed securities] backed by subprime loans grew substantially. One myth about the this period—accepted and repeated by the FCIC and many others—is that private mortgage securitizations took a larger share of the market between 2004 and 2006 than Fannie and Freddie. However, this is true only if one ignores the purchases of private-label securities by Fannie and Freddie to meet their AH goals. Between 2004 and 2006, Fannie and Freddie bought about 20 percent, or $613 billion, of the private mortgage securitizations tracked by the FCIC. These securities should be attributed to Fannie and Freddie rather than the private sector because they were created to meet the GSEs’ demand. In that case, the GSEs’ own issuances, plus the PMBS they acquired, totaled $3.2 trillion, compared to $2.6 trillion in private issuances over the same period. Thus, the private-sector market share of securitizations never exceeded GSEs issuances between 2004 and 2006.[18]
....Underlying the giant housing bubble that drew them in was a government investment that in 2008 consisted of 20.4 million subprime and other risky loans—about three times the size of the PMBS market. If the government had not created a ten-year bubble by making massive investments in subprime and other low-quality mortgages, the private sector would never have been drawn into the subprime market in such a significant way. The weakening of financial institutions in the mortgage meltdown—and the resulting financial crisis—would never have occurred.
Even Nobel prize winning economist Paul Krugman fell for the sleight of hand described in the above.  Of course, Krugman, in July of 2008, also wrote in the NY Times that the GSEs couldn't have been responsible for the housing bubble that had burst because it was illegal for them to even deal in sub-prime mortgages.  At the time they held between one and two trillion dollars of such.

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