Who Are These Morons?
So, the latest volley from the NeoCon Right: the current financial crisis was caused by - ready for it? - the poor and minorities. Yup, stupid poor and minorities took out Fannie and Freddie loans mandated by the government as affirmative action, and drove our economy right into the ground, they say.
Living in the wasteland of the free,
Where the poor have now become the enemy.
'Let's blame our troubles on the weak ones'
Sounds like some kind of Hitler remedy -
Living in the wasteland of the free.
*facepalm* Anyway, just in case you run into one of these people, McClatchy and Investopedia have the actual story.
TL;DR: the Community Reinvestment Act didn't apply to the investment banks, non-bank lenders, and mortgage brokers at all, only a third of the CRA loans were subprime, and generally CRA loans had lower default rates than the general market. The financial market meltdown was largely the fault of the asset-backed securities created off of the subprime mortganges, not the mortgages themselves. And various financial agencies were making subprime mortgages because as long as real estate prices kept climbing, it didn't matter if the loan was bad; the value of the house would equal the value of the loan by the time the agency got around to foreclosing, so they figured they couldn't lose.
Let me point to that last one. Anyone recognize that? The bet that a particular commodity will never decrease in value? Houston, you know that one already. That's the bet that Enron lost. They were betting on their own stock value, not real estate, but it was the same gamble, just a different table. And we all know about gambling - the house always wins. (Perhaps that's not as appropriate here, but you know what I mean.)
Even shorter TL:DR: TAANSTAFL. No matter how good your financial market wizardy is. Fastow and Skilling learned it in 2001; now, so does everyone else.
[back to Grading Hell]
Living in the wasteland of the free,
Where the poor have now become the enemy.
'Let's blame our troubles on the weak ones'
Sounds like some kind of Hitler remedy -
Living in the wasteland of the free.
*facepalm* Anyway, just in case you run into one of these people, McClatchy and Investopedia have the actual story.
TL;DR: the Community Reinvestment Act didn't apply to the investment banks, non-bank lenders, and mortgage brokers at all, only a third of the CRA loans were subprime, and generally CRA loans had lower default rates than the general market. The financial market meltdown was largely the fault of the asset-backed securities created off of the subprime mortganges, not the mortgages themselves. And various financial agencies were making subprime mortgages because as long as real estate prices kept climbing, it didn't matter if the loan was bad; the value of the house would equal the value of the loan by the time the agency got around to foreclosing, so they figured they couldn't lose.
Let me point to that last one. Anyone recognize that? The bet that a particular commodity will never decrease in value? Houston, you know that one already. That's the bet that Enron lost. They were betting on their own stock value, not real estate, but it was the same gamble, just a different table. And we all know about gambling - the house always wins. (Perhaps that's not as appropriate here, but you know what I mean.)
Even shorter TL:DR: TAANSTAFL. No matter how good your financial market wizardy is. Fastow and Skilling learned it in 2001; now, so does everyone else.
[back to Grading Hell]