Despite the attempt by government and particularly Democrats, to blame the financial meltdown we’ve endured on banks and unscrupulous investment companies, the buck stops with them according to a new study just released:
Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.
But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”
Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.
As we’ve mentioned previously any number of times, government policies can set and enforce preverse incentives. And that has nothing to do with a free market. That’s at best a mixed market. So no, the problem wasn’t a “market failure”, it was the usual result of government intruding and setting preverse incentives that are contrary to good business practices and would likely not survive or succeed in an actual free market.
Here’d the bottom line:
The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.
CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.
It passed a law requiring the government-backed agencies to “assist insured depository institutions to meet their obligations under the (CRA).” The goal was to help banks meet lending quotas by buying their CRA loans.
But they had to loosen underwriting standards to do it. And that’s what they did.
Not only that, they guaranteed the bad loans with your money. Why do you think so much money has had to be pumped into those two institutions?
You see the market had determined that certain standards protected their investments. The government decided to ignore reality and push a social agenda using “race” as the basis for throwing out those standards and using their coercive power to implement the social agenda they preferred.
The result was predictable.
And the coverup as well.
Following up yesterday’s post, this is really the sort of country I long for as articulated by Troy Senik. In fact, I long for it:
I want a “leave me alone” society — one where Christian schools can turn people away for rejecting their doctrine, just as gay rights groups can reject those who don’t share their beliefs. I don’t want us all to get along — not because I’m misanthropic (well, not just because I’m misanthropic), but because I know that “consensus” is usually a fancy word for muting minority viewpoints. I want us all to be free to be annoyed with each other from our separate corners. Is that too much to ask?
Apparently. Ask Sarah Conely (I still can’t get over the title of her book and the implication it carries which, if she even realizes it, should chill her to the bone). Ask Mayor Bloomberg. Ask most of the left and a good portion of the right.
How did we ever wander away from that direction and end up on the one where a major news organ, the NYT, even gives a forum to crypto-fascists like Conely? What a horrifying person she is. Imagine someone as cavalier about your rights actually in a position of power. Imagine the possibilities. Oh, that’s right, we don’t have too, do we. We have history to provide the examples. Tons of them.
And yet here is this supposed “learned” academic parroting the same authoritarian themes in a soothing voice designed to lull you into feeling good about giving everything away to the authoritarians (or at least enough so that at some point they can just take the rest).
I want what Senik wants. I don’t have a problem with most discrimination. Yeah, I know – that’s heresy isn’t it? Look, if someone wants to discriminate let them – and let them pay the “stupid tax” for doing so. But here’s the point – you should be free to do that. You should have the right to be stupid and to do stupid things (with the usual caveat that it’s only okay as long as your stupid acts don’t harm others or violate their rights). You should have the right to fail, get fat, smoke, drink, and be an ignorant slob without the do gooders deciding they have to save you from yourself and the only way to do that is to take your freedom away. Or to tell you how to act, talk, or interact with penalties for not being politically correct.
Why is it that the Sarah Conely’s of the world are published in the NYT and the ideas of the Troy Senik’s of the world have to settle for blogs? When did Senik’s idea, which was once very main stream in this country, become extremist while what was once not only extremist, an anathema to America, but thoroughly discredited throughout history somehow gain respectability again?
When you boil it all down, it is that dilemma which amply describes why we’re in the awful shape we’re in and why we see our freedoms under constant assault and slowly being taken away.
I’m just wondering when the tipping point occurred.
For those of you who like cars and motoring, I have some new content up on Medium:
If you like these articles, please be sure to recommend them. My entire automotive collection is available here, and more will be coming.
Here are today’s statistics on the state of the economy:
Durable goods orders soared 5.7% in February, mainly on new aircraft orders. Ex-transportation orders, however, fell -0.5%.
New home sales in February declined 4.6 percent to an annualized pace of 411,000.
The S&P Case-Shiller Home Price Index rose 1.0% in January, following 0.9% and 0.6% gains in the two prior months.
The Conference Board’s Consumer Confidence Index plunged more than 8 points to a reading of 59.7 for March.
The Richmond Fed Manufacturing Index fell 3 points to a March reading of 3.
The State Street Investor Confidence Index fell to 88.0 on lower demand for equities and rising demand for fixed income products.
In weekly retail sales, Redbook reports same store sales slowing to a 2.6% year-over-year sales growth rate. ICSC-Goldman Store Sales plunged -1.7% from last week, up only 1.0% from last year.
That’s essentially what Sarah Conely does in a NY Times op-ed. Oh, she cloaks it benignly enough -“it’s just soda” – as he supports the Bloomberg ban on large volume soda sales. But in essence what she claims is “government knows best” and “giving up a little liberty isn’t so bad if it benefits the majority”.
You see, liberty, in her world, is much less important that security or safety. And we, as knuckle dragging neanderthals, don’t always know what is best for us or how to accomplish our goals without the hand of government to guide us (how we ever managed to make it to the 21st century without that guiding hand is still a mystery in Conely’s circle). Sure some can do it, but most can’t and so laws should be designed to protect and guide (coercively of course) those who can’t (or are believed to be unable).
A lot of times we have a good idea of where we want to go, but a really terrible idea of how to get there. It’s well established by now that we often don’t think very clearly when it comes to choosing the best means to attain our ends. We make errors. This has been the object of an enormous amount of study over the past few decades, and what has been discovered is that we are all prone to identifiable and predictable miscalculations.
Research by psychologists and behavioral economists, including the Nobel Prize-winner Daniel Kahneman and his research partner Amos Tversky, identified a number of areas in which we fairly dependably fail. They call such a tendency a “cognitive bias,” and there are many of them — a lot of ways in which our own minds trip us up.
For example, we suffer from an optimism bias, that is we tend to think that however likely a bad thing is to happen to most people in our situation, it’s less likely to happen to us — not for any particular reason, but because we’re irrationally optimistic. Because of our “present bias,” when we need to take a small, easy step to bring about some future good, we fail to do it, not because we’ve decided it’s a bad idea, but because we procrastinate.
We also suffer from a status quo bias, which makes us value what we’ve already got over the alternatives, just because we’ve already got it — which might, of course, make us react badly to new laws, even when they are really an improvement over what we’ve got. And there are more.
The crucial point is that in some situations it’s just difficult for us to take in the relevant information and choose accordingly. It’s not quite the simple ignorance [John Stuart] Mill was talking about, but it turns out that our minds are more complicated than Mill imagined. Like the guy about to step through the hole in the bridge, we need help.
So, now that we have these Nobel Prize winning psychologists and behavioral economists on the record saying we’re basically inept shouldn’t it be clear to you, as Conely concludes, that “we need help”?
That sort of “help” used to come from family, friends and community. We somehow managed, for around 200 years, to grow and succeed splendidly without government intruding and trying to control our lives.
The basic premise of her piece is much the same as Bloomberg’s more direct assault:
The freedom to buy a really large soda, all in one cup, is something we stand to lose here. For most people, given their desire for health, that results in a net gain. For some people, yes, it’s an absolute loss. It’s just not much of a loss.
Or to quote a more succinct Bloomy: “I do think there are certain times we should infringe on your freedom.”
Notice the arbitrariness of the “I do think”. His choice, not yours. Bloomberg picked sodas. What else could he or those like him arbitrarily pick next time? Think government health care for example and your mind explodes with where they could go.
And notice Conely’s dismissal of the loss of freedom as “not much” of a loss. Incrementalism at its finest. Pure rationalization of the use the coercive power of the state to do what they think is best for you, because, as her academic colleagues have stressed, “we need help.” And our betters are always there to “help” us, aren’t they?
Funny too how the solution is always the same, isn’t it?
And their desire to intrude? Well its wrapped up in their concept of government’s role in our lives:
In the old days we used to blame people for acting imprudently, and say that since their bad choices were their own fault, they deserved to suffer the consequences. Now we see that these errors aren’t a function of bad character, but of our shared cognitive inheritance. The proper reaction is not blame, but an impulse to help one another.
That’s what the government is supposed to do, help us get where we want to go.
No. It’s not. That isn’t at all the function of government as laid out in the Constitution. Not even close. It has always been our job to “get where we want to go”. Government’s job was to provide certain functions to ensure an equality of opportunity (like a fair legal system, stable monetary system, etc), but on the whole we were free to pursue our lives without its interference as long as we stayed within the legal framework and did no harm to others or attempted to defraud them.
Conely’s last sentence is the mask that fronts and justifies/rationalizes every authoritarian regime that has ever existed. If you don’t believe that, I invite you to look at the title of her last book. “Against Autonomy: Justifying Coercive Paternalism.”
Kind of says it all, doesn’t it?
Here are today’s statistics on the state of the economy:
The Dallas Fed Manufacturing Survey rose from 2.2 to 7.4 in March. The production index rose less strongly, from 6.2 to 9.9.
The Chicago Fed National Activity Index rose to a positive 0.44 in February from January’s -0.49 The 3-month average fell, however, to 0.09 from 0.28.
At least in terms of your freedoms?
New York City Mayor Michael Bloomberg said on Sunday: Sometimes government does know best. And in those cases, Americans should just cede their rights.
“I do think there are certain times we should infringe on your freedom,” Mr. Bloomberg said, during an appearance on NBC.
Well, he may not be THE most dangerous, but he’s right up there with them. He’s just more blunt and obvious about it than most of the others.
I’m sorry folks, but this is an attitude that has pervaded our politics for quite some time and it is unacceptable. Totally unacceptable and should be stomped on like you would stomp a cockroach.
Government rarely “knows best” and has a dismal track record in that area. More importantly, this was a country founded on the principle of individual freedom (liberty) and heavy restraints on government power. As someone said, the Constitution doesn’t grant rights – they’re natural. What the Constitution is is a restraining order on government. Or was. It is government via people like Michael Bloomberg who’ve turned that upside down and feel comfortable enough to blurt what can only be considered authoritarian drivel (pick your brand) because he thinks he has the “right” to infringe on yours. His statement is anathema to all this country once believed in.
Yet, there are a good number of people today who will back his play and agree that he his job entails being big daddy and using the force of government to save you from yourself.
Yeah, not really.
Let me preface this by saying there is absolutely no need for new gun control legislation. None. Nada. Zip. Zero.
The claims by the left that gun control legislation will solve problems of violence are nonsense. Period.
But that likely won’t stop the usual suspects among GOP Senators from helping the left in their incremental but determined efforts to limit your 2nd Amendment rights. Apparently “Congress shall make no law” has a different meaning to some people:
Sen. John McCain (R-Ariz.) has emerged as a key player if Senate Democrats are to have any chance of passing legislation to expand background checks for private sales of firearms.
McCain and Sens. Susan Collins (R-Maine) and Dean Heller (R-Nev.) are at the top of a list of Republicans considered most likely to sign on to legislation expanding background checks after talks with Sen. Tom Coburn (R-Okla.) stalled earlier this month.
Sen. Mark Kirk (R-Ill.) has signaled he will likely support the yet-to-be-finalized proposal he negotiated with Sens. Charles Schumer (D-N.Y.) and Joe Manchin (D-W.Va.) to expand background checks to cover private gun sales, according to Senate sources.
Of course we’ve been assured by some that this is really of no big consequence and we should relax and let it happen.
Like I said in the beginning – there is absolutely no need for new gun control legislation – none. The fact that some in the GOP seem poised to make that happen anyway should tell you all you need to know about certain members of that party and their professed claim to believe in your Constitutional rights all while negotiating parts of them away.
This week, Bruce, Michael and Dale discuss the events of the week.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.