That would be an incorrect assumption.MSimon wrote:Obviously you are unfamiliar with the hue and cry over redlining and "The Community Redevelopment Act".
It's called the Community Reinvestment Act, and it's been on the books since Carter.
The hue and cry is clearly political in nature, and the data does not back up what it asserts. I have no interest in spouting, which is why I included actual data points and timelines, rather than links to editorials. The timeline for the growth in subprime lending has two points of interest. One is in 1997 where subprime lending volume grew from *well* under $100b/yr to a little less than $200b/yr. Wow, huh? That spike is worthy of investigation, however, the funny thing about that growth is that it was a one time event. Lending stayed just under $200b/yr all the way through 2002. In 2002, subprime lending grew explosively (non-stop) until 2006.
What funded that growth was greed. Subprime mortgage lending does not grow to be nearly a quarter of the mortgage lending market on the back of a 30 year old act starting 25 years after its enactment. The obvious impetus for that growth was the Fed's aggressive rate cutting and its promise to keep rates low. It allowed overly aggressive bond pricing, which was further topped off with no-doc ARM refinancing, and followed-through by a corrupt for-hire RE assessment process. Mortgage brokers, eager to make upfront fees, paid for-hire assessors to overstate home values. This pervasive over-valuing supported (ironically) higher/safer bond security ratings, because, as long as housing prices go up, the cost of defaults remains low. Rising housing prices allowed frequent refinancing, which further depressed default rates. So, not only were defaults low, what few there were had a minimal impact on earnings. Therefore, your subprime bonds were as safe as treasuries. QED.
The CRA has very little to do with any of this. Roughly half of all sub-prime loans were made by mortgage brokers not covered by CRA, and half of the remaining were made by affiliates not fully covered under the act.
As for the blip in '97, my bet is that it was the Fed rendering Glass-Steagall obsolete by allowing bank holding companies to engage in the securities underwriting business. With the ability to securitize their loans, this allowed a greater monetizing of their existing lending arms. However, I have a lot fewer facts there. Regardless of facts, however, no doubt this will become a liberal talking point, to which I would like to point out that our current crisis would be a lot WORSE if banks like, oh, BAC, couldn't buy out investment firms like, oh, Merrill.
There's going to be a lot of partisan finger pointing going on. It helps to have the facts.