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Sunday, January 27. 2013

Here we go again

Government resumes pressuring banks to approve subprime loans.


What could possibly go wrong?

Posted by Bird Dog in Hot News & Misc. Short Subjects at 07:37 | Comments (19) | Trackback (1)

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Weblog: www.dailypundit.com
Tracked: Jan 27, 22:30

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OMG, not again.
#1 jma on 2013-01-27 08:32 (Reply)
QUOTE:
Paul Sperry: A recent study by the National Bureau of Economic Research, the nation's pre-eminent economic research group, states that the CRA "clearly" had a major impact on the flood of subprime loans made in the late 1990s and 2000s, which directly led to the housing crisis.

That rather mangles reporting of the study. The study found that CRA did increase the incidence of risky loans, however, CRA loans constituted only a small fraction of subprime loans. In addition, the increased risk was due to unobservables, so it wasn't due to relaxed lending standards.

Agarwal et al., Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, National Bureau of Economic Research 2012.
#2 Zachriel on 2013-01-27 08:33 (Reply)
OMG, Zach, not again.
#2.1 jma on 2013-01-27 08:35 (Reply)
jma,

Bird Dog thought it important enough to blog about, so establishing the relevant facts should be pertinent. When you read the report, you will realize that Sperry probably didn't read the report himself.

QUOTE:
Agarwal et al: we find that the reduction in loan standards associated with elevated lending around CRA exams is based primarily on unobservable characteristics. In other words, there is no meaningful change in the observable characteristics of loans made by treatment group banks relative to the control group banks around the CRA exam. This, again, is to be expected under our interpretation of the results, since banks have an incentive to convince regulators that loans extended to meet CRA criteria are not overly risky. This would be consistent with the CRA mandate of “encouraging financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation” (CRA 1977, Section 802).

You could argue that this is a typical unintended consequence of the regulation, as bankers try to comply with conflicting demands of the legislation. But you can't make this sort of argument with facile interpretations of the result meant only to support a preconceived conclusion.

More specifically, Sperry said "the CRA 'clearly' had a major impact on the flood of subprime loans made in the late 1990s and 2000s, which led directly to the housing crisis." When reading within the echo-chamber, always watch out for ellipses or single-word quotes. Be skeptical. The word "clearly" is used only once in the study:

QUOTE:
Agarwal et al: By tracing out banks’ responses to CRA evaluations in terms of both the quality and the quantity of mortgages originated, we show clearly that the CRA did lead to riskier lending.

That is not what Sperry says they concluded. They are not the same claims at all. And as we know from other studies that CRA loans only constituted a small fraction of subprime loans, that would apparently contradict Sperry's reworded claim.
#2.2 Zachriel on 2013-01-27 08:55 (Reply)
Echos

http://www.google.com/?q="A+recent+study+by+the+National+Bureau+of+Economic+Research%2C+the+nation's+pre-eminent+economic+research+group%2C+states+that+the+CRA+"clearly"
#2.3 Zachriel on 2013-01-27 09:10 (Reply)
QUOTE:

That rather mangles reporting of the study. The study found that CRA did increase the incidence of risky loans, however, CRA loans constituted only a small fraction of subprime loans. In addition, the increased risk was due to unobservables, so it wasn't due to relaxed lending standards.

Agarwal et al., Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, National Bureau of Economic Research 2012.
#2 Zachriel on 2013-01-27 08:33


All of which would not have existed to manipulate without CRA.
The claim that a small percentage of loans is the result of "unobservables" imo, though still a byproduct of the CRA mentality.
#2.4 Dale on 2013-01-27 12:01 (Reply)
Dale: All of which would not have existed to manipulate without CRA.

Not sure what you mean "all of which". Subprime existed independently of CRA. The source of the problem wasn't originations, but gaming of the securities system. Originations followed securitization because that's where the money was.

Dale: The claim that a small percentage of loans is the result of "unobservables" imo, though still a byproduct of the CRA mentality.

Yes, the study suggested banks were trying to balance the conflicting demands of CRA.
#2.4.1 Zachriel on 2013-01-27 12:39 (Reply)
The "all of which" I referred to were your finger pointing to "unobservables". To be honest, I have no idea what you meant by that because your didn't define them.
What were they?

The percentage of something does not have to be the main factor in the demise of something...a little poison can go along way, in aiding a tipping point, if "thats where the money was".
One process leads to another and the creation of other mechanisms of creative accounting and balance sheets.

Bad business policies that go against decades of established procedures will most likely not end well.
It's not much different than what is going on in politics now...not following a Constitutional system that has been the highwater mark for the world, but to use and manipulate it to force an agenda.
Same process and mentality...different application.
#2.4.1.1 Dale on 2013-01-27 13:51 (Reply)
Dale: The "all of which" I referred to were your finger pointing to "unobservables". To be honest, I have no idea what you meant by that because your didn't define them.

It's defined in Agarwal et al., which is the basis of Sperry's argument. Observables are documentary support for underwriting guidelines. They found that underwriting guidelines were not weakened, yet there was a higher level of default on loans close to the time of audits. That implies there were other factors, unobserved factors, that affected loan quality.
#2.4.1.1.1 Zachriel on 2013-01-27 14:03 (Reply)
"And as we know from other studies that CRA loans only constituted a small fraction of subprime loans, that would apparently contradict Sperry's reworded claim." According to the dissenting FCIC finding, "of the 19.2 million subprime and low quality loans that were on the books of government agencies in 2008, 12 million (about 62% ) were held or guaranteed by Fannie and Freddie."

Where in this discussion are mentions of Barney Frank's friend, Herb Moses?" Frank was rather miffed about the recent disclosure that he helped former lover Herb Moses land a job with the behemoth lender while sitting on a House committee that regulates lenders a decade ago. The Boston Herald reported Thursday that Frank immediately invoked the Everybody Does It card: “It is a common thing in Washington for members of Congress to have spouses work for the federal government. There is no rule against it at all.”# Where is ACORN? Where is Jamie Gorlick? Where is Henry Cisneros with HUD? Where is Chris Dodd? (is he visiting his cottage in Ireland?) Where are all of the others?
Finally, our President's efforts to push the banks to give subprime loans surfaced in his Chicago class action suit involving Citibank.

What a cesspool.







# http://michellemalkin.com/2011/05/27/barney-franks-friends-with-benefits/
#2.4.1.2 Thalpy on 2013-01-27 15:17 (Reply)
Zachriel: And as we know from other studies that CRA loans only constituted a small fraction of subprime loans, that would apparently contradict Sperry's reworded claim.

Thalpy: According to the dissenting FCIC finding, "of the 19.2 million subprime and low quality loans that were on the books of government agencies in 2008, 12 million (about 62% ) were held or guaranteed by Fannie and Freddie."

That doesn't address our claim. CRA is not GSE.

The GSEs were late to the party, and were the 'greater fools' who got caught when the music stopped.
#2.4.1.2.1 Zachriel on 2013-01-27 19:15 (Reply)
Hilarious. I was just about to post that you must be mistaken, because I have it on good authority with every blue-stater I've discussed this with for four years that the CRA never pressured banks to lend to unqualified borrowers in the first place, so how could they be doing it again? But Z has made my comment redundant.
#3 Texan99 (Link) on 2013-01-27 09:29 (Reply)
Our comment concerns the misrepresentation of Agarwal et al. as the foundation for Sperry's argument.
#3.1 Zachriel on 2013-01-27 09:51 (Reply)
Another, more honest way to redistribute wealth would be for the banks to take their profits in currency, say 20s and 50s, and stow em in five gallon buckets in the basement. Quarterly, the staff could just haul the buckets up to the top floor and dump them out the windows.
#4 buddy larsen on 2013-01-27 12:40 (Reply)
That's what Pol Pot did. Of course he also made the cash illegal, so we can read reports of how eerie was Phnom Phen after the great dispersal to the countryside, the vacant city with its cash blowing around the empty streets. Natch, ground-faulting the currency immediately short-circuited the grocery business, so he couldn't feed about one in every three or four, so he had to brain them with clubs, iron bars, and shovels, which were more economical than cartridges, a foreign trade good.
#4.1 buddy larsen on 2013-01-27 13:04 (Reply)
You have to go there for the hyperlinks, but

QUOTE:
LIFE IN THE ERA OF HOPE AND CHANGE: The Crisis Of The Black Middle Class.


The Clinton and Bush administrations set policies to encourage Black home ownership, but these made things worse. . . . So when the real estate bubble burst, it hurt Blacks much more than whites: 25 percent of African-Americans who purchased or refinanced homes from 2004 to 2008 have lost or are losing them, compared to 11.9 percent of white Americans. According to Sugrue, “the median black family today holds only $4,955 in assets.”

This is what happens when you violate Reynolds’ Law.

Posted at 9:58 pm by Glenn Reynolds
#5 buddy larsen on 2013-01-27 13:43 (Reply)
And if there's a disparate impact on blacks, it's conclusive proof of racism, right? Unless your heart was pure, then it doesn't count.
#5.1 Texan99 (Link) on 2013-01-27 13:54 (Reply)
"Racism" is highly conditional, and the conditions are highly mutable. But you just called it, even though you probably didn't have permission.
#5.1.1 buddy larsen on 2013-01-27 21:05 (Reply)
Maybe they should have read a little something said by Einstein (not just smart about E=MC2):

"The definition of stupidity is doing the same thing over and over again and expecting different results."
#6 Charles on 2013-01-27 22:59 (Reply)

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