Subprime Thinking

Did Liberals Cause the Sub-Prime Crisis? | The American Prospect:

“It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. 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.”

(Via The American Prospect.)

Wall Street and the Third World |

Wall Street and the Third World |

“The former Communist countries generally turned, after the dismal failure of their postwar system, to market capitalism, replacing Karl Marx with Milton Friedman as their god. The new religion has not served them well. Many countries may conclude not simply that unfettered capitalism, American-style, has failed but that the very concept of a market economy has failed, and is indeed unworkable under any circumstances. Old-style Communism won’t be back, but a variety of forms of excessive market intervention will return. And these will fail. The poor suffered under market fundamentalism—we had trickle-up economics, not trickle-down economics. But the poor will suffer again under these new regimes, which will not deliver growth. Without growth there cannot be sustainable poverty reduction. There has been no successful economy that has not relied heavily on markets. Poverty feeds disaffection. The inevitable downturns, hard to manage in any case, but especially so by governments brought to power on the basis of rage against American-style capitalism, will lead to more poverty. The con?sequences for global stability and American security are obvious.”

(Via Vanity Fair.)

Great and succinct critique on market fundamentalism (“free markets can solve any problem”).

Economists on the Bailout – Freakonomics – Opinion – New York Times Blog

Economists on the Bailout – Freakonomics – Opinion – New York Times Blog:

“The only thing that seems to be moving faster than the financial crisis is the policy debate. The latest development is a statement that summarizes what I think of as the emerging consensus from academic economists; it expresses concern about various aspects of both the Paulson plan in particular, and the policy process in general.”

(Via Freakonomics – Opinion – New York Times Blog.)

Slow down. Take a breath everybody. Who Caused the Economic Crisis? Who Caused the Economic Crisis?:

“So who is to blame? There’s plenty of blame to go around, and it doesn’t fasten only on one party or even mainly on what Washington did or didn’t do. As The Economist magazine noted recently, the problem is one of ‘layered irresponsibility … with hard-working homeowners and billionaire villains each playing a role.’ Here’s a partial list of those alleged to be at fault:

  • The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
  • Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
  • Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
  • Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
  • The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
  • Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
  • Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
  • Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
  • The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
  • An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
  • Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.”


Obama Casts Wide Blame for Financial Crisis and Proposes Homeowner Aid – New York Times

Obama Casts Wide Blame for Financial Crisis and Proposes Homeowner Aid – New York Times:

“‘Instead of establishing a 21st-century regulatory framework, we simply dismantled the old one,’ he said, ‘aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight.’”

(Via The NY Times.)

I’m always for keeping things balanced. One thing he can’t say without losing his bid is that a 21 century framework has to be structured so that debtors shoulder some responsibility. While I’m sure many were hoodwinked and bamboozled, many others simply got greedy and gorged on cheap debt. They have to be taken to the shed as well. Let’s hope Barack leads in an effort to setup such a system.