Wall Street Bailout

[mattjez]

This video pushes blame but does not state true facts. Everything in this video blames the Community Reinvestment Act which basically states that if you take deposits from the poor you should also lend to them if they meet the requirements.

Now. Sub-prime mortgages are to blame for this you say. Great and I will agree to that fact however the sub prime lending was not done by the banks governed by the CRA the CRA only applied to FDIC insured banks.

Sub prime lending by break down of covered by CRA and not covered by CRA.

50% of all sub prime mortgages came from companies not bound by the CRA meaning private companies not FDIC insured. These are mortgage companies only and not deposit banks meaning I can't have a checking account from the place my mortgage is created. These companies where driven by profit margins not laws that forced them into lending.

Another 25-30% came from bank subsidiaries and affiliates that are loosely tied to the CRA.

This leads us to 1 in 4 sub prime mortgages are created by banks covered by the CRA. This does not lead us to say the CRA is the problem.

"Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households.""

http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

"But CRA has always had critics, and they now suggest that the law went too far in encouraging banks to lend in struggling communities. Rhetoric aside, the argument turns on a simple question: In the current mortgage meltdown, did lenders approve bad loans to comply with CRA, or to make money?

The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened."

Here is the time line (http://www.telegraph.co.uk/finance/2815755/Timeline-The-sub-prime-mortgage-crisis.html)

"That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did."

I am all about placing blame where blame is due, however just because you don't like people who modified it does not mean you can blame them.

The blame lies in the spending of America, being driven off profit margins, living on debt instead of within your means etc. There is plenty of blame to go around but the numbers do not lie