Politics

[Wild Bill]

bankers right?

They're the least of my concerns.

 

[autry_denson]

It's the fault of a small faction of Americans who will not accept individual responsibility. Politicians who encourage their behavior with entitlements share the blame.

ok, you say it's not bank execs, so let's see...

Homeowners?
I agree - those with mortgages have become the most dependent segment of the population, recipients of enormous gov't handouts thru the mortgage interest deduction, our biggest federal housing expenditure. Most goes to the wealthiest homeowners, so maybe this is the group you mean?

 

[T Town Tommy]

Its funny that we still think bankers created the mess. ITs actually the housing sector that sparked it, with the help of the commercial banks. For the longest time mortgages were the safest investment possible, for people who couldnt afford to lose the money. Then the government stepped in and..... in barney franks own words: rolled the dice. They changed the lending standards.

The result was giving mortgages to everyone and their daughter, no matter if they could pay it off. Those mortgages default and house of cards comes down, pulling down the investment banks caught up in the trades.

Agree to a point. The federal gov't forced lending institutions to make loans to individuals that they would never make otherwise. Then, at some point, the money was too easy and everyone got in on the act. The balloon burst and every two bit politician who had pushed for the shady lending practices to begin with were the first to step up to the mic to bitc* about it. Now... we all get to pay for it.

 

[BobD]

It's my fault.

Other than casting my vote and b!tching about things, I can't say I've done much to try and fix anyrhing. How bout you guys?

 

[T Town Tommy]

It's my fault.

Other than casting my vote and b!tching about things, I can't say I've done much to try and fix anyrhing. How bout you guys?

Well... I obviously didn't cast enough votes.

 

[autry_denson]

Agree to a point. The federal gov't forced lending institutions to make loans to individuals that they would never make otherwise. Then, at some point, the money was too easy and everyone got in on the act. The balloon burst and every two bit politician who had pushed for the shady lending practices to begin with were the first to step up to the mic to bitc* about it. Now... we all get to pay for it.

Are you talking about the Community Reinvestment Act here, passed in the 70s? One of the fair housing acts? What policy do you have in mind that involved the federal gov't forcing private lenders to make all of that money by selling bad loans against their will?

If stuff like this is out there and people actually believe it, I give up. You can only drift so far into fiction before the exchange of ideas becomes pointless.

 

[Buster Bluth]

Are you talking about the Community Reinvestment Act here, passed in the 70s? One of the fair housing acts? What policy do you have in mind that involved the federal gov't forcing private lenders to make all of that money by selling bad loans against their will?

If stuff like this is out there and people actually believe it, I give up. You can only drift so far into fiction before the exchange of ideas becomes pointless.

Did you sleep through the 90s and 00s when the government manufactured the idea that owning a home is the American Dream?

 

[irishpat183]

Well... I obviously didn't cast enough votes.

Just vote in Illinois next time...

 

[autry_denson]

Did you sleep through the 90s and 00s when the government manufactured the idea that owning a home is the American Dream?

No, I agree that home ownership started to become encouraged and supported in a totally irresponsible way. But the question is how the government forced private lenders to make loans that they should not have, which is what was argued: (" The federal gov't forced lending institutions to make loans to individuals that they would never make otherwise.")

The government's role in this crisis was very clear - the gov't got caught up in the bubble and stopped regulating lending while contributing to the bubble through gov't supplied loans and monetary policy.

This is a crisis that emerged when the government abandoned its role of regulating the private sector. It is now being retold by our friend in Alabama as a story where gov't somehow overregulated and forced the private sector to make bad loans.

 

[Irish Houstonian]

...But the question is how the government forced private lenders to make loans that they should not have, which is what was argued: (" The federal gov't forced lending institutions to make loans to individuals that they would never make otherwise.")...

But that's exactly what the Community Reinvestment Act does. You need enough CRA points to keep your charter. (It even begs the question -- if the banks were going to make these loans anyway, why would we need the law in the first place?)

And while you can't necessarily blame the "housing crisis" on any single thing, the CRA certainly didn't help, and most likely made things worse.

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?
Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru
NBER Working Paper No. 18609
Issued in December 2012
NBER Program(s): AP CF


Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.

 

[DSully1995]

Not to mention you could guarantee your mortgages with fannie and freddie bundle them up and sell em off

 

[autry_denson]

But that's exactly what the Community Reinvestment Act does. You need enough CRA points to keep your charter. (It even begs the question -- if the banks were going to make these loans anyway, why would we need the law in the first place?)

And while you can't necessarily blame the "housing crisis" on any single thing, the CRA certainly didn't help, and most likely made things worse.

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Interesting. Really good study, and all of the evidence I had previously seen on the topic showed zero effect of the CRA on lending activity. This is useful.

So the CRA was developed as a means to rectify the federal government's role in encouraging discrimination in lending. The history is that when the gov't started guaranteeing mortgages from the 1930s and expanding through the 1950s, the official criteria for evaluating loans used the racial composition of the community to determine whether a loan was risky or not. the effect was that entire neighborhoods were 'outlined in red' if they were deemed too risky to guarantee a loan b/c the neighborhood was racially mixed (hence redlining). These criteria, which were developed by the federal gov't, were then used by private lenders which resulted in large-scale discrimination in mortgage lending. This is a major reason why nonwhites never left central cities like white ethnics did - they couldn't get access to mortgage subsidies b/c their presence in communities made these communities too risk to loan to.

Built into the CRA is language that encourages big banks to provide coverage to communities that have been underserved by financial institutions - there is no penalty for non-compliance with the CRA, except that information on where banks make loans is used (in theory) in decision-making about expansion of bank branches and mergers. Most studies have shown that the information is usually ignored in these decisions, but this paper provide some counter evidence. The CRA also requires that banks use normal standards to evaluate loan risk.

So if the CRA was responsible for the housing crisis, we'd probably assume that the CRA was instituted or changed in the runup to the collapse. It wasn't. It was implemented in the 1970s and revised last in the 1990s. Second, we'd want to make the case that the crisis was driven by loans made in places and by banks that were subject to CRA guidelines. I've seen estimates that CRA-affected areas count for less than 10% of subprime loans made in the years prior to the collapse (I could probably find the cite if I looked around for a while but don't remember where the estimate came from offhand).

Let me scale back my original language. this is good evidence suggesting that the presence of CRA may affect loan activity among banks that are subject to CRA guidelines. this is interesting, as everything I have seen prior to this paper suggests that it did not. If there was an effect, this is a failure of regulators to comply with the actual CRA law, which requires that sound lending policies are used in all communities, including those that have not traditionally been the most profitable communities. No quotas for number of prevalence of loans have ever been part of the CRA. The failure lies in the increasingly lax oversight of the types of loans that were being made inside and outside of CRA-designated areas.

But the key point is that the scale of this possible effect of the CRA is so small that it would be extremely difficult to argue that this had anything to do with the housing crisis.

 

[irishpat183]

Interesting. Really good study, and all of the evidence I had previously seen on the topic showed zero effect of the CRA on lending activity. This is useful.

So the CRA was developed as a means to rectify the federal government's role in encouraging discrimination in lending. The history is that when the gov't started guaranteeing mortgages from the 1930s and expanding through the 1950s, the official criteria for evaluating loans used the racial composition of the community to determine whether a loan was risky or not. the effect was that entire neighborhoods were 'outlined in red' if they were deemed too risky to guarantee a loan b/c the neighborhood was racially mixed (hence redlining). These criteria, which were developed by the federal gov't, were then used by private lenders which resulted in large-scale discrimination in mortgage lending. This is a major reason why nonwhites never left central cities like white ethnics did - they couldn't get access to mortgage subsidies b/c their presence in communities made these communities too risk to loan to.

Built into the CRA is language that encourages big banks to provide coverage to communities that have been underserved by financial institutions - there is no penalty for non-compliance with the CRA, except that information on where banks make loans is used (in theory) in decision-making about expansion of bank branches and mergers. Most studies have shown that the information is usually ignored in these decisions, but this paper provide some counter evidence. The CRA also requires that banks use normal standards to evaluate loan risk.

So if the CRA was responsible for the housing crisis, we'd probably assume that the CRA was instituted or changed in the runup to the collapse. It wasn't. It was implemented in the 1970s and revised last in the 1990s. Second, we'd want to make the case that the crisis was driven by loans made in places and by banks that were subject to CRA guidelines. I've seen estimates that CRA-affected areas count for less than 10% of subprime loans made in the years prior to the collapse (I could probably find the cite if I looked around for a while but don't remember where the estimate came from offhand).

Let me scale back my original language. this is good evidence suggesting that the presence of CRA may affect loan activity among banks that are subject to CRA guidelines. this is interesting, as everything I have seen prior to this paper suggests that it did not. If there was an effect, this is a failure of regulators to comply with the actual CRA law, which requires that sound lending policies are used in all communities, including those that have not traditionally been the most profitable communities. No quotas for number of prevalence of loans have ever been part of the CRA. The failure lies in the increasingly lax oversight of the types of loans that were being made inside and outside of CRA-designated areas.

But the key point is that the scale of this possible effect of the CRA is so small that it would be extremely difficult to argue that this had anything to do with the housing crisis.

That bolded statement is the problem that the government ALWAYS has with everything.

Trying to legislate out discrimination and therefore, creating a far worse problem in the end.

 

[pkt77242]

Did you sleep through the 90s and 00s when the government manufactured the idea that owning a home is the American Dream?

I would say that that idea was around long before the 90's. Hell I would say it goes back to the soldiers returning from the World War II, getting an education and buying homes. As during the late 40's and through the 50's the percent of Americans owning their homes jumped drastically.

Historical Census of Housing Tables - Homeownership

 

[irishpat183]

2 things I hate the most religion and politics

Then why comment on a thread with this title?

 

[ACamp1900]

Then why comment on a thread with this title?

Pat, did you really just go all the way back through this thing and quote a post from more than two months ago...?? lol

 

[Wild Bill]

ok, you say it's not bank execs, so let's see...

Homeowners?
I agree - those with mortgages have become the most dependent segment of the population, recipients of enormous gov't handouts thru the mortgage interest deduction, our biggest federal housing expenditure. Most goes to the wealthiest homeowners, so maybe this is the group you mean?

The mortgage interest deduction is not an "expenditure" for the federal government. It's a tax deduction, not a tax credit.

What's your definition of wealthy? Most wealthy people I know rarely pay interest and would not benefit from the deduction at all. Let's assume, however, that I'm a wealthy, single, male tax-filer with a $1,000,000 mortgage and a 5% interest rate. I can only deduct interest from the first $500,000 - roughly $24,000 per year. If I didn't enjoy the benefit of the deduction, my tax liability would increase by $8,400 (35% of $24,000). If I was wealthy, do you really think $700 per month would set me back? If the government took it away, and I had to pay my "fair share" would it "level the playing field"?

The mortgage interest deduction benefits families with average salary who take out traditional mortgages, not jumbo loans. A family with a $250,000 mortgage reduces their taxable income by $12,000 per year. The deduction, in many instances, allows them to be homeowners rather than renters - which is the policy reason behind the mortgage interest tax deduction.

What's your take on section 8? You know, the government expenditure that allows people to live in homes and neighborhoods that they otherwise couldn't afford for free.

 

[irishpat183]

Pat, did you really just go all the way back through this thing and quote a post from more than two months ago...?? lol

Was that 2 months ago!?!?!?! LOL!!! For some reason, that popped up when I refreshed my screen!

LOL...


I just can't let go....

 

[autry_denson]

The mortgage interest deduction is not an "expenditure" for the federal government. It's a tax deduction, not a tax credit.

What's your definition of wealthy? Most wealthy people I know rarely pay interest and would not benefit from the deduction at all. Let's assume, however, that I'm a wealthy, single, male tax-filer with a $1,000,000 mortgage and a 5% interest rate. I can only deduct interest from the first $500,000 - roughly $24,000 per year. If I didn't enjoy the benefit of the deduction, my tax liability would increase by $8,400 (35% of $24,000). If I was wealthy, do you really think $700 per month would set me back? If the government took it away, and I had to pay my "fair share" would it "level the playing field"?

The mortgage interest deduction benefits families with average salary who take out traditional mortgages, not jumbo loans. A family with a $250,000 mortgage reduces their taxable income by $12,000 per year. The deduction, in many instances, allows them to be homeowners rather than renters - which is the policy reason behind the mortgage interest tax deduction.

What's your take on section 8? You know, the government expenditure that allows people to live in homes and neighborhoods that they otherwise couldn't afford for free.

You generally don't want to evaluate policy based on how your friends use it. They may not pay interest on a mortgage, most homeowners do. The estimated cost of the interest deduction is roughly 100 billion. 77% of that goes to people making anywhere from $75,000 to $500,000. It's a regressive giveaway that is implemented through the tax code. Everyone who's eligible gets it, the definition of an entitlement. That said, those who deduct interest from their taxes are very happy to have that extra money.

The old section 8 program (now housing choice vouchers) is a great comparison. It costs somewhere around 17 billion I believe (might be off by a small amount). It goes to low-income families and allows them to pay only up to 30% of their income on rent. It is extremely difficult to get a housing voucher through this program, with wait lists of decades in some cities. When people get off of the wait list they have to go through an intensive screening process with months of meetings in order to be able to use it. Most who are eligible for it do not get it. Those who get it are, I'm sure, absolutely thrilled to have housing that is affordable.

In your mind, people such as the recipients of housing vouchers are responsible for the problems in this country - the old idea of the "undeserving poor." You argue that their dependence on government handouts is the major problem in this country. what about the affluent (or anyone on this site, for that matter) who deduct mortgage interest from their taxes? they get much more than the poor do, and they get it automatically, a pure entitlement. why is your anger directed at low-income recipients of federal assistance, and not high-income recipients? are you similarly angry at veterans who receive gov't assistance? the elderly? the disabled? farmers?

 

[irishpat183]

You generally don't want to evaluate policy based on how your friends use it. They may not pay interest on a mortgage, most homeowners do. The estimated cost of the interest deduction is roughly 100 billion. 77% of that goes to people making anywhere from $75,000 to $500,000. It's a regressive giveaway that is implemented through the tax code. Everyone who's eligible gets it, the definition of an entitlement. That said, those who deduct interest from their taxes are very happy to have that extra money.

The old section 8 program (now housing choice vouchers) is a great comparison. It costs somewhere around 17 billion I believe (might be off by a small amount). It goes to low-income families and allows them to pay only up to 30% of their income on rent. It is extremely difficult to get a housing voucher through this program, with wait lists of decades in some cities. When people get off of the wait list they have to go through an intensive screening process with months of meetings in order to be able to use it. Most who are eligible for it do not get it. Those who get it are, I'm sure, absolutely thrilled to have housing that is affordable.

In your mind, people such as the recipients of housing vouchers are responsible for the problems in this country - the old idea of the "undeserving poor." You argue that their dependence on government handouts is the major problem in this country. what about the affluent (or anyone on this site, for that matter) who deduct mortgage interest from their taxes? they get much more than the poor do, and they get it automatically, a pure entitlement. why is your anger directed at low-income recipients of federal assistance, and not high-income recipients? are you similarly angry at veterans who receive gov't assistance? the elderly? the disabled? farmers?

Because the "high income" folks earn their money. They provide jobs. They fund the damn social programs.

There is a difference. And Don't bring up Vets...come on. They've paid their dues in other ways.

 

[Irish Houstonian]

...The estimated cost of the interest deduction is roughly 100 billion...

Well, if you mean the lost revenue because of the deduction, it's more like 70 billion. And the only reason it's this high is because people assumed it would stay in place.

And it's not like it does only bad things for bad people. Much of the labor market is driven by the housing market, the deduction stimulates consumer spending, and many, if not most, pension plans, retirement funds, mutual funds, and even our Federal Reserve buy these mortgage-backed securities in the open market. Cutting the deduction now would hurt all of these things, just so Uncle Sam could spend it in his infinite wisdom...

 

[autry_denson]

Well, if you mean the lost revenue because of the deduction, it's more like 70 billion. And the only reason it's this high is because people assumed it would stay in place.

And it's not like it does only bad things for bad people. Much of the labor market is driven by the housing market, the deduction stimulates consumer spending, and many, if not most, pension plans, retirement funds, mutual funds, and even our Federal Reserve buy these mortgage-backed securities in the open market. Cutting the deduction now would hurt all of these things, just so Uncle Sam could spend it in his infinite wisdom...

there was a projection that the costs would be higher this year, my recollection is that the estimate was 100 billion. the interest deduction certainly does good things for a lot of good people. I think you could make a pretty good case that low-income housing assistance does a lot of good things for a lot of good people as well - like allow a small number of them to live in half-decent housing.

But money to the rich (or to me) is a subsidy, money to the poor is a handout; the rich deserve it b/c they create jobs, the poor don't b/c they don't have the will to make it. the same old stuff...

 

[Ndaccountant]

Well, if you mean the lost revenue because of the deduction, it's more like 70 billion. And the only reason it's this high is because people assumed it would stay in place.

And it's not like it does only bad things for bad people. Much of the labor market is driven by the housing market, the deduction stimulates consumer spending, and many, if not most, pension plans, retirement funds, mutual funds, and even our Federal Reserve buy these mortgage-backed securities in the open market. Cutting the deduction now would hurt all of these things, just so Uncle Sam could spend it in his infinite wisdom...

The deduction is a distortion of the market, whether it is good intentioned or not. One could make the argument that the increased construction employment takes manpower and brainpower away from other areas where it could produce a greater long term benefit. Truth is, we don't know for sure and probably never will.

The one thing I do know is that the problem we have as a country is nobody is willing to take the pain pill. Aside from the fact that it doesn't feel good, we must argue endlessly about who is feeling more pain and whether or not that is fair, as if "fair" is a concept that we all can agree.

The freaking asshat republicans want to gamble on debt ceiling. Okay, that sounds smart. The democrats keep pushing for "balance" via "revenues" as if there is a never ending well of money. Meanwhile, my neighbor finds out his tax bill will be $40k larger this year than last year, on approx. the same income. What does he do? He works less since he will actually make more money working less to be under the income limit. Sounds pro growth to me, especially when you consider the employees he has will be working less too. Our system is broken.

Sorry for the rant.

 

[BobD]

Different topic.

You guys think we're gonna tomahawk Syria?

 

[Ndaccountant]

Different topic.

You guys think we're gonna tomahawk Syria?

something like this....

 

[BobD]

If we do send missiles into Syria, Hamas will probably bomb Israel and possibly other US interests. Russia and China are strong allies of Syria and Iran is talking sh!t. With Iraq in shambles and Egypt a mess, things are very on edge in the middle east. Not to mention Al-Qaeda everywhere. There is a sh!t storm brewing.

 

[Wild Bill]

You generally don't want to evaluate policy based on how your friends use it.

I never mentioned my friends.

They may not pay interest on a mortgage, most homeowners do.

And most of those mortgage paying homeowners are not wealthy. That's my point, the deduction helps middle class Americans far more than it does wealthy Americans.

77% of that goes to people making anywhere from $75,000 to $500,000.

You consider someone making $75,000 wealthy?

It's a regressive giveaway that is implemented through the tax code. Everyone who's eligible gets it, the definition of an entitlement. That said, those who deduct interest from their taxes are very happy to have that extra money.

The government isn't providing anything. They are simply allowing a tax deduction to promote a public policy.

In your mind, people such as the recipients of housing vouchers are responsible for the problems in this country - the old idea of the "undeserving poor." You argue that their dependence on government handouts is the major problem in this country. what about the affluent (or anyone on this site, for that matter) who deduct mortgage interest from their taxes? they get much more than the poor do, and they get it automatically, a pure entitlement. why is your anger directed at low-income recipients of federal assistance, and not high-income recipients? are you similarly angry at veterans who receive gov't assistance? the elderly? the disabled? farmers?

Why do you assume I'm angry? What anger have I directed at anyone?

 

[autry_denson]

I never mentioned my friends.

- You wrote "Most wealthy people I know rarely pay interest and would not benefit from the deduction at all." So you did not discuss your friends in evaluating who benefits from the policy, you discussed most wealthy people that you know. Acquaintances, maybe?

And most of those mortgage paying homeowners are not wealthy. That's my point, the deduction helps middle class Americans far more than it does wealthy Americans... You consider someone making $75,000 wealthy?

- I wrote that about 75% of the home mortgage interest deduction goes to families making from 75,000 to 500,000. Households making 75,000 are at about the 67th percentile of the US household income distribution, and that is the lower bound of the segment of the population receiving most benefits. So yes, families in this range (which, you'll notice, does not just consist of people at the lower bound of the range) can be considered wealthy.

The government isn't providing anything. They are simply allowing a tax deduction to promote a public policy.

- the government is providing assistance in the form of a tax deduction. this is how a whole lot of policies are implemented. there are a few differences in the details of policies designed as tax deductions and credits, the main one being that everyone eligible automatically gets it - i.e. it is an entitlement, unlike the other program you mentioned, housing choice vouchers, which can be limited so that eligible individuals have a very hard time actually accessing the benefit.

Why do you assume I'm angry? What anger have I directed at anyone?

- You started by responding to a post about the problems of America as "the fault of a small faction of Americans who will not accept individual responsibility." Anger may not be the right word to describe this sentiment - let's be more literal and say that you are placing the blame for America's problems on the poor.

 

[Polish Leppy 22]

If we do send missiles into Syria, Hamas will probably bomb Israel and possibly other US interests. Russia and China are strong allies of Syria and Iran is talking sh!t. With Iraq in shambles and Egypt a mess, things are very on edge in the middle east. Not to mention Al-Qaeda everywhere. There is a sh!t storm brewing.

If we do bomb Syria, I hope all the progressive/ code pink/ anti war activists still have their banners and signs ready for nationwide protests like they were 10 years ago.

I'll also be asking all the people driving toyota prius or subaru's with the bumper stickers reading "war is not the answer" or "coexist" why they voted for a war-mongerer.

 

[BobD]

If we do bomb Syria, I hope all the progressive/ code pink/ anti war activists still have their banners and signs ready for nationwide protests like they were 10 years ago.

I'll also be asking all the people driving toyota prius or subaru's with the bumper stickers reading "war is not the answer" or "coexist" why they voted for a war-mongerer.

I don't want us involved in another war, but we can't let them use chemical weapons on their citizens and just ignore it.