How Did This Happen: News

Welcome to today’s heavyweight battle over who is to blame for the financial crisis. In this corner, wearing black and white trunks, is newspaper legend, The New York Times. In the far corner, wearing red, white and blue trunks, is the President of the United States of America, George “Dubya” Bush.

Both fighters come out swinging. The Times leads with a scathing article, detailing how the president ignored warnings about the impending financial meltdown, while pushing irresponsible economic policies that drove us over the brink. President Bush swings wildly, issuing a 500-word statement calling The Times “irresponsible” for its reporting.

The fight continues on and only time will tell if the president will come clean and take responsibility for his administration’s role in the financial crisis that grips us all in this holiday season.

The Washington Post continues its report on what went wrong to cause the financial crisis with a new installment from Jill Drew called “Frenzy.”

It was Wall Street’s version of an inside joke: Take a motley collection of largely unwanted assets, repackage them into a new set of bonds, and name it after the pristine white-sand beaches of an exclusive New Jersey town where Katharine Hepburn once summered.

No one is laughing now (read the rest of the report here).

From Pat Garofalo the Wonk Room:

In a New York Times op-ed today, Howard Husock, vice president for policy research at the Manhattan Institute, is the latest in a string of conservatives to try pinning blame for the housing crisis on low-income borrowers and the Community Reinvestment Act (CRA). Husock claims that, “the American public will be ill served” if community-reinvestment rules and affordable housing goals are “allowed to continue unchanged“:

There’s little doubt that the rating agencies helped inflate the housing bubble. But when we round up all the culprits, we shouldn’t ignore the regulators and affordable-housing advocates who pushed lenders to make loans in low-income neighborhoods for reasons other than the only one that makes sense: likely repayment.

As Matt Taibbi put it responding to similar sentiments from Byron York, “Tell me you’re not ashamed to put this gigantic international financial Krakatoa at the feet of a bunch of poor black people who missed their mortgage payments.”

The notion that loans made to lower-income borrowers through the CRA somehow caused the housing crisis has been thoroughly debunked again and again. Only six percent of the subprime loans made by CRA-covered lenders went “to lower-income borrowers or neighborhoods in their CRA assessment areas,” while 60 percent went to middle- or high-income borrowers. It was non-bank mortgage companies — not covered by CRA — that originated 50 percent of subprime loans, while another 30 percent were made by non-bank subsidiaries of banks or thrifts.

After promoting that idea that the CRA helped ignite the housing crisis, Husock goes on to claim that “we no longer need blunt regulatory instruments to draw lenders into low-income neighborhoods.” This is also a misguided assessment, as lenders are still discriminating against aspiring minority homeowners.

Just this week, the National Commission on Fair Housing and Equal Opportunity released a report showing that “U.S. housing is still racially segregated 40 years after civil rights laws to end unfair practices”:

The report found that whites got better loans than blacks, Latinos and Asians, who make up roughly a third of the population and who were sometimes steered away from buying homes in predominately white communities.

As Federal Reserve Board Governor Randall S. Kroszner said last week “CRA has, in fact, been helpful in alleviating the financial isolation of many areas of concentrated poverty.” This week, meanwhile, the Times’ editorial board advocated “strengthening fair-lending laws, especially the Community Reinvestment Act.” Indeed, weakening these regulations in a misplaced attempt at assigning blame for the housing crisis is counterproductive, and will further exacerbate already existing housing divisions.

The Treasury Department and the FDIC are close to an agreement that would have the government guarantee some distressed mortgages. That’s a good step, since stemming home foreclosures and restructuring troubled mortgages is key to slowing the downward spiral hammering financial institutions and the real American economy. Read more »

Jim Cramer from CNBC’s “Mad Money” points out similarities between 1929 and now.

Former Federal Reserve Chairman Alan Greenspan said Thursday that he should not have resisted regulating the market for mortgage-backed securities, the collapse of which is causing a worldwide “credit tsunami.” Testifying before Congress, he acknowledged that the failure of expected self-regulation represented “a flaw in the model” he used to analyze economics.

The whole intellectual edifice . . . collapsed in the summer of last year.

Read more »

Wall Street pushed the door to subprime lending wide open with its hunger for profitable securities based on mortgages. The housing crisis caused by the subsequent collapse of the mortgage market must be addressed to turn around the economy, but so far the bailout seems to only be helping Wall Street.

Phil Gramm: The Deregulator

It’s a convenient excuse: claiming that the financial crisis was caused by the poor and those who made it easier for them to get mortgages. The problem: it’s simply not true. In a New York Times Op-Ed, Michael Barr and Gene Sperling lay the blame squarely where it belongs — with investment bankers, mortgage brokers and the willful lack of government supervision by the Bush administration. For his part, economist Michael Ettlinger looks at the conservatives’ claims and concludes, “they’re so far off the mark that one can’t even give them points for cleverness.”

Bush administration officials and bankers take a chainsaw to regulations

It didn’t take long after the financial crisis hit before the conservative talking points started appearing on Fox News, media critic Eric Alterman points out. The blame-shifting spread to several other news organizations, primarily on op-ed pages, the Media Matters Action Network found. Fortunately, some reporters kept pounding the pavement for facts: McClatchy pulled federal housing numbers to show which banks had the biggest appetites for subprime mortgages. Guess what? They got into the mess all by themselves.