OT: Elections/Politics thread, part 4

[RobVarak]

Rob, you're making it sound like most of the subprime crisis has to do with banks being bullied to extend loans to lower-income borrowers.

That was not my point at all. Rather, I was demonstrating that for all the talk of deregulation, the mandates and quotas imposed by the laws and regulations that I referenced demonstrate a countervailing strengthening of regulation. The Feds were deregulating with one hand and drafting new and updated regs with the other for decades.

I'm just trying to point out the fallacy of the suggestion that the subprime mess is simply the result of deregulation or lax regulators.

Incidentally, it's not just the Federal directives to extend higher risk loans on the basis of income that contributed to the problem. There were also direct mandates regarding minority lending (essentially across all income levels) that injected a non-risk based factor into lending decisions to the detriment of borrower and lender alike. This also led to an environment where banks often green-lighted loans to minorities without the same level of scrutiny that they would have applied to white applicants. This was clearly more of a factor for banks in less racially heterogeneous areas, but it was a factor as well.

[TheGamer]

Rob, you're making it sound like most of the subprime crisis has to do with banks being bullied to extend loans to lower-income borrowers.

Incidentally, it's not just the Federal directives to extend higher risk loans on the basis of income that contributed to the problem. There were also direct mandates regarding minority lending (essentially across all income levels) that injected a non-risk based factor into lending decisions to the detriment of borrower and lender alike. This also led to an environment where banks often green-lighted loans to minorities without the same level of scrutiny that they would have applied to white applicants. This was clearly more of a factor for banks in less racially heterogeneous areas, but it was a factor as well.

When I was underwriting, I was never told by my bosses at either lender I worked for to lessen the scrutiny of any application because the applicant was a minority. If anything, the deals that I declined that were overturned were because of the relationship between my account executive and the broker that submitted the loan. Despite the fact that documents were clearly forged by the broker's office.


**edit** In fact, there was a period during which applicants who lived in certain zip codes in the city of Chicago, had to attend a class before they could refinance their home loans. These zip codes were predominantly on the south and west sides of the city. Many brokers stopped submitting loans from those zip codes because they didn't want to deal with it and it wasn't profitable to them.

[fsquid]

I think the whole motivation of those who set up the system was "every slob gets a house." The democrats wanted the votes of those slobs. The home builders wanted to build those houses, and had plenty of well-financed lobbyists to twist arms.

The system was set up to be taken advantage of by storefront mortgage initiators who wrote a bunch of bad paper and sold it all off. They're looking like getting out relatively unscathed so far, unfortunately.

The guys at the top who gamed the system for huge personal gain are now advising our presidential candidates. More Obama than McCain, it would appear, but that's more because of partisanship than anything else. If Clinton had been a republican, they'd be advising McCain.

[wco81]

Subprime lending wasn't foisted upon private lenders by the govt. There was a gold-rush mentality, with home values going up well into double-digits every year.

At the origination level, there were no checks, either by regulators or by the lenders themselves. The latter didn't bother with any standards because they were going to resell the mortgages on the secondary market to a very-wiling Wall Street. In fact, Wall Street set up operations to work closely with some originators to push through as many loans as possible, in order to feed the securitization machine. Mortgage brokers were given incentives, making more commissions on subprime loans than more conservative ones.

http://www.npr.org/templates/story/stor ... d=92304458

The administration not only bothered to regulate, they blocked efforts by states to clamp down on more questionable practices, at the behest of banks which wanted unfettered throughput of new mortgages:

http://www.washingtonpost.com/wp-dyn/co ... 02783.html

http://www.slate.com/id/2182709


And of course, the scale of the trading in securitized mortgages increased the magnitude of the losses.

http://www.npr.org/templates/story/stor ... d=89338743

http://www.npr.org/templates/story/stor ... d=94686428

[RobVarak]

Rob, you're making it sound like most of the subprime crisis has to do with banks being bullied to extend loans to lower-income borrowers.

Incidentally, it's not just the Federal directives to extend higher risk loans on the basis of income that contributed to the problem. There were also direct mandates regarding minority lending (essentially across all income levels) that injected a non-risk based factor into lending decisions to the detriment of borrower and lender alike. This also led to an environment where banks often green-lighted loans to minorities without the same level of scrutiny that they would have applied to white applicants. This was clearly more of a factor for banks in less racially heterogeneous areas, but it was a factor as well.

When I was underwriting, I was never told by my bosses at either lender I worked for to lessen the scrutiny of any application because the applicant was a minority. If anything, the deals that I declined that were overturned were because of the relationship between my account executive and the broker that submitted the loan. Despite the fact that documents were clearly forged by the broker's office.


**edit** In fact, there was a period during which applicants who lived in certain zip codes in the city of Chicago, had to attend a class before they could refinance their home loans. These zip codes were predominantly on the south and west sides of the city. Many brokers stopped submitting loans from those zip codes because they didn't want to deal with it and it wasn't profitable to them.

That's obviously good underwriting practice, but it doesn't diminish the fact that there were regulatory mandates in place to extend loans to minorities and lower-income applicants, including quotas in some cases.

As I already said, unlike some, I'm NOT saying that this was the sole or even leading cause of the crisis.

[RobVarak]

It's not a campaign until somebody starts to lie in order to scare senior citizens.

http://www.factcheck.org/elections-2008 ... niors.html

A new Obama ad characterizes the "Bush-McCain privatization plan" as "cutting Social Security Benefits in half." This is a falsehood sure to frighten seniors who rely on their Social Security checks. In truth, McCain does not propose to cut those checks at all.

...The ad goes on to claim that the Bush (and McCain) plan would cut "benefits in half." This is a rank misrepresentation. Nobody now getting benefits, or even close to retirement, would have seen any reduction in benefits or cost-of-living adjustments under the plan Bush proposed in April, 2005. ,,,

The Obama-Biden campaign attempts to document their "cutting benefits in half" claim by citing a report by the Center on Budget and Policy Priorities written by Jason Furman, who is currently one of Obama's top economic advisers. This won't do. What Furman's study actually says is quite different from what the ad claims.

Furman's report says that the "progressive price indexing" plan Bush supported would result in benefits for the average worker who retires in 2075 that are 28 percent lower than under the current formula. Obviously 28 percent is not "half."

The Obama-Biden campaign notes that Furman's paper also says that full price indexing of benefits – even for low-income workers – would result in benefits 49 percent lower than the current formula in 2075. But that's not the plan Bush supported, and we find no evidence that McCain ever supported it either. We asked the Obama campaign to show us where McCain has ever supported full price indexing of benefits, but so far they have not done so...

It seems appropriate to stop as we enter the last 6 weeks of the election and recall the stirring words of Barack himself:

...if you don't have any fresh ideas, then you use stale tactics to scare the voters. If you don't have a record to run on, then you paint your opponent as someone people should run from.

[RobVarak]

First, this was a survey by Stanford...what does this have to do with Obama supporters? Did they commission the poll? It's an interesting poll, that shows that race is still an issue with a lot of Americans; and that Obama's race will be a negative issue for some voters.

Second, I doubt that tons of African-Americans are voting for Obama just because of race. Kerry won the African-American vote 88-11 in 2004. Most polls have Obama's support among African-Americans around 93-94 percent, so (assuming race is the only reason for the increase), he's only gaining 5-6% among blacks.

Nate Silver from FiveThirtyEight weighs in on the Stanford poll. AP irresponsible?? This week really has shaken my confidence in the hallowed institutions of our national media

http://www.fivethirtyeight.com/2008/09/ ... l#comments

The commentariat's topic du jour is this AP story which cites a study conducted in conjunction with Yahoo!, Knowledge Networks and Stanford University and which reports that "Statistical models derived from the poll suggest that Obama's support would be as much as 6 percentage points higher if there were no white racial prejudice." Here are some thoughts I have on the matter:

1. It is irresponsible to cite this study without fully disclosing its methods or making it subject to peer review, particularly as it appears to use a rather convoluted soup of statistical and inferential techniques.

2. The study appears to be one of all adults, rather than registered or likely voters. Expressions of racial prejudice have a strong inverse correlation with education levels, and so do turnout rates. Therefore, even if it is true that Barack Obama's race puts him at something like a 6-point disadvantage with the population as a whole, the margin is probably more like 4-5 points among likely voters.

3. A related and unresolved question is how many persons will vote for Barack Obama because he is black. Such behavior would probably be more implicit and harder to ascertain than voting against a candidate because of racial prejudice. For instance, Obama's biography is significantly more compelling because he is black (actually, bi-racial), and his change message is probably somewhat easier to sell because he looks different than other (e.g. white) politicians. If he were white, in other words, Barack Obama would not be Barack Obama. Moreover, there may be some people who explicitly vote for Obama because they think it will advance a goal of racial equality, present a different face to the world, and so forth. In the absence of sufficient detail on the study's methodology, it is impossible to know whether these things have been accounted for.

4. One should be very careful not to confuse a study like this with the Bradley Effect. Of course some people are racist, and will vote against Obama because he is black -- I have met some of them. But the Bradley Effect concerns something different -- whether such people are likely to lie about their behavior to pollsters. There is simply no empirical evidence that the Bradley Effect exists any longer. It did not exist in the primaries, and it did not exist in the 2006 Senate race in Tennessee, which was perhaps the most racially-tinged contest of the past decade (in fact, Harold Ford slightly outperformed the late polls).

[matthewk]

Before Obama goes blaming Bush for everything he should read up a recent history:

http://yidwithlid.blogspot.com/2008/09/ ... prime.html

The Bush administration is far from innocent in all of this, but they are also not the sole ones to blame.

[RobVarak]

Before Obama goes blaming Bush for everything he should read up a recent history:

http://yidwithlid.blogspot.com/2008/09/ ... prime.html

The Bush administration is far from innocent in all of this, but they are also not the sole ones to blame.

Ah but during the Clinton administration the regulators were snarling attack dogs with the integrity of Elliot Ness. During the last 8 years they're drunken Barney Fifes.

Seriously, the roots of the crisis are enormous and well beyond any one branch of government, agency or individual.

[JRod]

Before Obama goes blaming Bush for everything he should read up a recent history:

http://yidwithlid.blogspot.com/2008/09/ ... prime.html

The Bush administration is far from innocent in all of this, but they are also not the sole ones to blame.

Ah but during the Clinton administration the regulators were snarling attack dogs with the integrity of Elliot Ness. During the last 8 years they're drunken Barney Fifes.

Seriously, the roots of the crisis are enormous and well beyond any one branch of government, agency or individual.

Ya but it always falls on the guy sitting in office, whether it's good (Clinton Economy) or bad (Bush - just about everything). Thems the breaks of being President.

[XXXIV]

Ya but it always falls on the guy sitting in office, whether it's good (Clinton Economy) or bad (Bush - just about everything). Thems the breaks of being President.

Yep, I agree....Most people dont care about the how and why...They dont want to think about it...Just show them the $$$$

No more evidence needed than the switch in direction of the polls this week.

"Its the economy stupid"

[Jared]

Matt,

That article is basically saying that the catalyst of the subprime crisis was the Community Reinvestment Act (a Clinton thing). I address this before (thinking it was a point Rob was making before...I was mistaken, sorry Rob), but again, that's not the case. The conclusions of the study linked below is that "CRA Banks were substantially less likely than other lenders to make the kinds of risky home purchase loans that helped fuel the foreclosure crisis". There seems to be a meme going on that the banks were just forced into giving loans to poor people, and that's the cause of the crisis...but that's just not the case.

http://www.traigerlaw.com/publications/ ... 1-7-08.pdf

[wco81]

The Community Redevelopment Act "encouraged" minority lending.

How did it "force" lenders to make risky loans?

What law or regulation told lenders to make bad loans or give out loans without documenting income?

The charges in that blog entry would have more heft if he can list the specific regulations.

He blames "multiculturalism" but fails to mention the "ownership society" touted by politicians who would not be for "multiculturalism."

And he makes it sound like only Democrats took money from the GSEs, which wasn't the case at all.

Many of the lenders who made bad loans came and went within the past 5 years. They rushed in when home values were going up like crazy.

That was the reason, chasing what seemed like endless profits, why those loans were made. Not because they wanted to be "multicultural," which is code for favoring minorities.

Even after all this subprime lending, minority ownership of homes is still low. It wasn't loans given to minorities which precipitated this crisis. It went a little wider than that.

[RobVarak]

Ya but it always falls on the guy sitting in office, whether it's good (Clinton Economy) or bad (Bush - just about everything). Thems the breaks of being President.

Well that's the political reality; I agree. But the "real" reality is often more complex. I think we've been discussing what actually precipitated the crisis.

[Teal]

Seriously?
http://politicalticker.blogs.cnn.com/20 ... s-13-cars/

Do they really think that's some kind of issue?

And on Drudge, this snippet appears right beneath the above link-it's almost too funny:

http://news.yahoo.com/nphotos/slideshow ... _politics/

I know they both travel around in their own campaign planes, but maybe that's the point: who's claiming who is out of touch with 'everyday Americans'?

Dear god, let November hurry up and GET HERE...I don't think I can take much more of this cartoon.[/url]

[Teal]

Interesting.
http://www.bloomberg.com/apps/news?pid= ... KSoiNbnQY0

[RobVarak]

Yesterday's state-by-state polling



FLA and NC are the most interesting, I suppose. The polling in NC has been insanely inconsistent, some showing a close race and others showing a McCain lead of 15+ points.

FL is still very much in play, something that is obviously borne out by Obama's move on the Social Security issue, but OH may be less so.

It's looking more and more like the Coleman-Franken race is going to help McCain possibly grab MN, and Obama seems to be reaching an insurmountable lead in IA.

There's also a very interesting discussion of allocating undecideds in polling models at FiveThirtyEight, and their projection formula has been adjusted accordingly.

[FatPitcher]

Here's a post on Instapundit that I agree with. It's about taxes.

http://www.pajamasmedia.com/instapundit ... 024693.php

We have a lot of messes to clean up, Medicare being the biggest and Social Security coming in second. Since shutting them down entirely is unfeasible politically and would create a lot of problems in the short term, the next best thing is fixing them. But it has to be a good-faith fix, not a fix from the Democrats that's a wealth transfer program in disguise, or a fix from Republicans that's a bone for their friends on Wall Street. I am in agreement with Reynolds that if the American people have to make sacrifices to fix this broken stuff, it shouldn't just be one class of people doing the sacrificing.

But I think it's pretty clear after the past few days that Congress simply doesn't know what to do most of the time, and even when they do, they are paralyzed by special interests. One of the flaws of democracy is that politicians are slaves to short-term interests; long-term solutions don't keep them employed.

[FatPitcher]

Interesting.
http://www.bloomberg.com/apps/news?pid= ... KSoiNbnQY0

The bill in question was unquestionably too little, too late. And with 56 votes in the Senate in 2005, the Republicans have no excuse for not at least bringing the bill to the floor. My guess is that if you did a little digging, you'd find more than a few Republicans beholden to Fannie/Freddie who didn't want to see this bill passed.

The one thing the Republican party can take out of this, though, is McCain's co-sponsoring of the bill. It goes along with Rudy's line from the convention, which in that case was referring to Iraq War strategy: "next time, call John McCain." If I were running that campaign, I would do nothing but push this constantly as evidence that McCain is a steady hand at the wheel in a time of crisis, while Obama is too risky a choice. Not that I actually believe McCain knows what to do at this point, but I think it would be an effective strategy.

[Jared]

Interesting.
http://www.bloomberg.com/apps/news?pid= ... KSoiNbnQY0

But wrong. This article is trying to pin the mortgage crisis on Fannie and Freddie, ignoring the fact that other mortgage companies imploded before this (Thornburg, Wachovia, IndyMac, Countrywide). It's absurd to say that this is simply because of Fannie and Freddie, when the implosion was going on throughout the entire mortgage market.

From a quick search, it looks like Fannie/Freddie hold $120 billion in subprime mortgages, out of a $1.4 trillion. If these numbers are right, that's less than 10% of the subprime market. (A different metric might be looking at the % of subprime loans the company held compared to other companies, but I don't have the time to find that info).

Regardless, it's silly to blame this on a few entities when this is clearly a market-wide problem.

Shorter Instapundit: Let's deal with the problem caused by stupidity by banks and borrowers that have disproportionately benefited the rich...by more regressive taxation and cutting programs that help the poor.

[RobVarak]

Regardless, it's silly to blame this on a few entities when this is clearly a market-wide problem.

Well given the candidates relative positions vis a vis Fannie and Freddie, that's the position the Democrats have to take. OTOH, those GSE's were disproportionately important in taking down the market. Moreover, it's one thing for private actors to act unreasonably and irresponsibly, but quite another for the GSE's to do so given their relationship with the Feds.

Obama's got a steaming pile in his front lawn on this one, so it behooves him and his supporters to minimize the number of people looking at it, either by pointing at bright, shiny objects in the next yard ("Look McCain wants to take your social security money!!") or by telling you that the pile doesn't really stink much relative to the stench of the whole block

--Edit

I overlooked another tactic available to Obama on this topic because it honestly never entered my mind. Watching his speech in Green Bay today, I was flummoxed when he opted to go after Rick Davis' Fannie/Freddie ties and tried to paint McCain as friend of the GSE's! LOL

So pay no attention to McCain's legislative record on the topic or the fact that Obama didn't just lobby for the GSE's he took money from them!! Honestly didn't see that one coming. Audacious.

--Edit 2

Freakenomics has an excellent guest post by John Steele Gordon on the role of Freddie and Fannie

http://freakonomics.blogs.nytimes.com/2 ... #more-3102

[dougb]

Holy crap,

Was that the U.S. dollar I just noticed plummeting down the elevator shaft? I guess that's one reason oil futures were skyrocketing up today.

I read in the Toronto Globe and Mail that Canadian Banks are in on the no short selling Gravy Train. So I guess Canadian Banks (and other foreign banks) will be handing over their s*** U.S. investments to the U.S. Taxpayer.

Anybody got an explanation as to why the foreign banks are being treated so generously? The exposures of Canadian Banks are quite low so they're in no way close to the vulnerability of American Banks. Are they afraid that foreign banks and wealth funds will just up and pull the plug completely if they don't allow them access?

Best wishes,

Doug

[RobVarak]

Are they afraid that foreign banks and wealth funds will just up and pull the plug completely if they don't allow them access?

Best wishes,

Doug

Precisely. I read several accounts of the Doomsday scenario that they were facing last week, and that was a component of many of them.

[dougb]

Are they afraid that foreign banks and wealth funds will just up and pull the plug completely if they don't allow them access?

Best wishes,

Doug

Precisely. I read several accounts of the Doomsday scenario that they were facing last week, and that was a component of many of them.

Thanks Rob. I don't think we're going to see a re-run of the Great Depression but I do think this is going to end quite badly with major spillover into the non banking, non housing sectors of the economy. There is probably far too much complexity to unwind things neatly and smoothly, even if the resources existed to do so. The tech bubble meltdown seems now like a pleasant memory by comparison.

Canadian Banks have been lobbying for deregulation for some time in order to allow them to compete with the bigger European and U.S. banks. It's somewhat ironic as some of those banks are shrinking in size or completely evaporating and the Canadian Banks may be somewhat relieved that they did not get what they asked for.

In terms of the U.S. Election the issue may help Democrats for than Republicans. Whoever wins the election may end up feeling like their victory was somewhat pyrrhic.

Best wishes,

Doug

[Jared]

Freakenomics has an excellent guest post by John Steele Gordon on the role of Freddie and Fannie

http://freakonomics.blogs.nytimes.com/2 ... #more-3102

The commentors tore up that post, for many of the reasons that I stated earlier.