as i'm writing this, congress is nearing a deal on wall street's bailout. i don't really know what it will be yet, and i have no clue whether president shit-for-brains will even sign it, and (not if) what signing statements he'll tack on.
but here is what we do know: what data is in indicates that it wasn't the community reinvestment act,(read the pdf from the link- it's only 12 pages and very informative) or clinton's efforts to enforce it. multiple studies (michael barr's report especially has some great info) have shown that a little over half of all subprime mortgages came from banks that had no obligations under the CRA, another quarter came from banks only partially covered by the CRA. only about one quarter of subprime mortgages are even made from financial institutions fully under the CRA to loan back to communities they take deposits from (which is the key requirement of the CRA). on top of that, banks reported low costs to even comply with the law, and that banks didn't consider CRA loans "overly risky" (see michael barr's report). to enforce this law, the federal government posts information on lending to low-income communities for the public, and reviews the percentage of credit to poor areas of banks trying to merge (clinton and reno's change in 1995). if there's a period of low-merger activity, the law just doesn't get as much enforcement.
the data coming in looks bad for lenders. consider what michael barr's report goes on to say- that borrowers, especially non-white borrowers, were "steered" to subprime mortgages, even when they could have qualified for a regular mortgage. flipping, packing, and huge fees that were very profitable made these loans a nightmare for borrowers. lenders sold existing borrowers refinancing loans they didn't need, and maybe even falsely reported the conditions of these loans to underwriters. the problems were so bad, state attorneys general started getting interested. however, the bush administration literally blocked them using the OCC, and a banking law from 1863, with some additonal regs thrown in. the attorneys general of all 50 states objected to and unsucessfully fought this. on top of that, 2005 changes in the CRA (which administration would that be) actually made predatory lending easier, as it changed what could be used as collateral to offer/price a mortgage. even jon stewart can see the bullshit. ("you have a casino!")
so spare me blaming this on blacks, hispanics, or poor people. lenders found easy targets with little financial knowledge, sold them loans they didn't need, suspected greatly they couldn't pay them back, priced them so the borrower would have trouble paying them back, then maybe fudged a few facts to a bunch of other people so they would buy the mortgages, then pocketed the profits. these initial mortgage buyers, including fannie mae and freddie mac, then resold these mortgages with mortgages that haven't failed to other investors, and pocketed their own profits. but this caught up with investors as the income from foreclosed mortgages dried up. by then, a few people had profited greatly, while borrowers lost their homes, small-time investors (read: me and you) lost their retirement savings, and now taxpayers just lost a shitload of government money that could have gone to schools, roads, hospitals, and mass transit. this was (is) the greedy preying upon the ignorant.
others have noted that we socialize loss and not profit in this country. i'll let them expound on this. for now, i'm just going to ask a question- WHY THE FUCK DO WE PUT UP THIS?!?!?!?!?!? where did we put our fucking pitchforks? and torches? where are the tar and feathers? we can complain, and blog, and email jack cafferty all we like, IT HASN'T MADE JACKSHIT BETTER. so here's my answer to my question: we put up with this, ultimately, because to demand change would make us reflect a little on the mistakes in thinking that led to this catastrofuck. we would have to wonder to ourselves why we let wall street police its own when history has shown it can't and won't. we would have to wonder to ourselves why we let living wages fall and be replaced with poverty wages and easy debt. we would have to wonder whether $700 billion could be better spent on things people could actually use, like trains, bridges (to more than 50 people), and schools. we would have to wonder why we actually fall for trickle down economics and free market myths every 20 years or so. and i don't think we'd like the answers to those questions.
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