April 28, 2014

“Clinton Library’s Doc Dump Reveals CRA Fueled Subprime Bubble”

I’ve recommended Gretchen Morgenson and Joshua Rosner’s Reckless Endangerment on a number of occasions. Let me take this opportunity to do so again.

It consistently amazes me how the American people re-elect to office the very kinds of people who cause them so much harm, be it to liberty or property. Maybe we’re a nation of masochists. Or maybe we’ve just be successfully dumbed down to the point of irretrievability. IBD:

Newly released memos from the Clinton presidential library reveal evidence the government had a big hand in the housing crisis. The worst actors were in the White House, not on Wall Street.

During the 1990s, former Clinton aides bragged that more aggressive enforcement of the Community Reinvestment Act pressured banks to issue riskier mortgages, lending more proof the anti-redlining law fueled the crisis.

A 2012 National Bureau of Economic Research study found “that adherence to that act led to riskier lending by banks,” with “a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam, (and) the effects are larger for loans made within CRA tracts,” or low-income and minority areas.

To satisfy CRA examiners, Clinton mandated “flexible” lending by large banks. As a result, CRA-approved loans defaulted about 15% more often, the NBER found.

Exhibit A in the 7,000-page Clinton Library document dump is a 1999 memo to him from his treasury secretary, Robert Rubin.

“Public disclosure of CRA ratings, together with the changes made by the regulators under your leadership, have significantly contributed to … financial institutions … meeting the needs of low- and moderate-income communities and minorities,” Rubin gushed. “Since 1993, the number of home mortgage loans to African Americans increased by 58%, to Hispanics by 62% and to low- and moderate-income borrowers by 38%, well above the overall market increase.

“Since 1992, nonprofit community organizations estimate that the private sector has pledged over $1 trillion in loans and investment under CRA.”

Other documents reveal how the community-activist group ACORN and other organizations met with Rubin and other top Clinton aides on “improving credit availability for minorities.”

Clinton’s changes to the CRA let ACORN use the act’s ratings to “target merging firms with less-than-stellar records and to get the banks to agree to greater community investment as a condition of regulatory approval for the merger,” White House aide Ellen Seidman wrote in 1997 to Clinton chief economist Gene Sperling.

“Community groups have come to recognize how terribly powerful CRA has been as a tool for making credit available in previously underserved communities,” Seidman added.

Seidman later boasted that Clinton’s 1995 CRA revisions created not only the subprime mortgage market but also the subprime securities market. Of course, subprime loans and their high default rates ruined minority neighborhoods when the market crashed.

Memos also reveal how Clinton aides held repeal of the Glass-Steagall Act hostage to strengthening the CRA. They gave Republicans deregulation of banking activities in exchange for over-regulating how those banking activities applied to low-income communities.


In 2000, HUD Secretary Andrew Cuomo lit the fuse on the subprime bomb by requiring Fannie Mae and Freddie Mac to purchase subprime, CRA and other risky mortgages totaling half their portfolios.

A 1993 memo, “Racism in Home Lending,” captured the tone of Clinton’s affordable-housing crusade. It proposed coordinating with the Washington Post and Congressional Black Caucus on bank investigations.

These White House papers are smoking-gun evidence of Clinton’s culpability in creating the subprime bubble. The mainstream media’s silence is deafening.

It’s not so much deafening as it is entirely predictable and of a piece with the increasingly unassailable fact that objectivity as a journalistic paradigm has given way to activism, which in the case of liberal Democrats amounts to circling the wagons, engaging in damage control when necessary, and an endless series of inconsistencies and deflections.

Worse still is that the same charade that goes on DC — where we pretend an adversarial 2-party system is still extant — has been copied by the mainstream press, which hires establishment GOPers (who voted for Kerry) or entrenched inside-the-Beltway dinosaurs, to give the “conservative” countervoice to the prevailing liberal bias, a check that isn’t a check, just as David Brooks, Jennifer Rubin, and (today) Robert Costa aren’t conservatives in any meaningful sense of the word.

But honestly, how can you blame them for copying a paradigm that has worked so successfully to push progressivism — of the rapid kind or the slow, lumbering kind preferred by neo-statist Republicans — so successfully over the last hundred or so years?

If we continue to act dumb, I expect they’ll continue to treat us that way.

Posted by Jeff G. @ 12:09pm

Comments (25)

  1. Cuomo was the one that really acted as Bubba’s enforcer on this deal; ramping up the share of guaranteed mortgages that were subprime to previously unheard of, and unsustainable, levels.

    His fingerprints are essentially all over the real estate backed financial meltdown in 2007-2008.

    A fact that everyone needs to remember when he finally gets the nerve up to run for president.

  2. It consistently amazes me how the American people re-elect to office the very kinds of people who cause them so much harm, be it to liberty or property. Maybe we’re a nation of masochists.

    What we are is a nation that can be race-baited. This was all about the “Affirmative Action” in home lending. And as long as Fannie Mae and Freddie Mac were underwriting it, why should any thoughtful banker care? Go along to get along, or face shakedown lawsuits from the race pimps.

  3. Jeff wrote:

    It consistently amazes me how the American people re-elect to office the very kinds of people who cause them so much harm, be it to liberty or property. Maybe we’re a nation of masochists. Or maybe we’ve just be successfully dumbed down to the point of irretrievability….

    Look, the great mass of people in America have never been the brightest bulbs, but, until the Left began destroying the legitimacy of the Family Unit and took enough control over education at all levels and the direction of the Culture, we could count on the great mass being swayed by the Atmosphere Of Republican Virtue that permeated the American Air.

    With that dispersed into near-insignificance, all they are left to breathe-in is the offal-filled miasma of the dessication that is Leftism, where penumbras emanate in a orgiastic display of happily ignorant servitude.

    Oh, Brave New World…

  4. when he finally gets the nerve up to run for president

    Since the Progressives happen to be so primarily and terribly concerned with mere efficiencies [all questions of morality having been already determined to their satisfaction], while we stand aside marveling at the consequences questions of efficiency alone seem to engender, perhaps the reflective Progressive ought to be alarmed owing to the possibility that newer applications of the efficiency principle be turned upon themselves? Such an alarm at the least is present among them already, I think, which, [their] alarm to us might suggest it can be turned around even again to [efficiently] short circuit that possibility? Ooof, nasty.

  5. I’m all for short-circuiting Bolsheviks, sd.

  6. Yes, well, that’s what I meant Bob, that the reflective Progressives have noticed the looming possibility, and will therefore take action (they’re the preeminent action-takers on the scene, after all) — we, in turn, think what that [aktion] means, bringing the cataclysm all the closer.

  7. I think that they’ll just join the legion of, “It never happened!” Like they do with just about everything else.

    If/when the filibuster ban is thought to precedent, they’ll swear it never happened. Just like no attorney general ever received the heat the Steadman Holder is getting, and no President ever received suffered the kind of opposition that Obama has, and so on…

    They effectively control the major media, so they feel confident in lying at will; secure in the knowledge that if it doesn’t fit into the “correct” narrative it will never be publicly pursued.

  8. Malfeasance everywhere. Heads never roll.

    We need to fix that.

  9. I mean, at the risk of sounding cliché, they’ve been plying the waters of Denial river for some time :)

  10. I’m wondering how the $350 million funding in 1996 of the “Fannie Mae Foundation,” run by a “Wendy Sherman” who is now #3 at the State Dept., effected the housing crisis. From what is on pages 71-74 and 115-116 of “Reckless Endangerment” that foundation was at least a if not the key player in the expansion of the subprime lending that brought down the whole shebang.

    From the linked Wiki.

    In 1996, she described her mission as the first president of the Fannie Mae Foundation:

    In other words, it is broadly reaching out to American citizens and saying to them: “You can have access to affordable housing. You might be able to get started on the path to homeownership, and we can at least give you some information that might help you get on your way.”

    In addition, two other programs came over. One is the New Americans Program, which is an effort to reach out to new citizens and immigrants to this country, because it was found in some research done in 1995 by Fannie Mae that immigrants who are renters are three times more likely to become homeowners than are other renters – because part of the American dream is to become a citizen and own your home.
    The last piece is an initiative trying to end some of the discriminatory practices in the mortgage lending business. We have a beginning of a program, where we are going to work with community colleges and other partnerships to help folks take courses and get into the mortgage lending business, so that the people who sit across the table – they become loan officers – may look a little bit more like you, might understand your culture and your values

  11. Heck, that ain’t new: the ChiComs charge the families of the executed for the price of the bullets, the Nazis funded their death machines with seizures from their victims.

  12. This explanation of the “housing crisis” will not fit on a bumper sticker. “Predatory lenders” is much easier to understand.

    Anyone who does not believe this problem was caused by govt interference only need to look at Canada and ask why it did not happen there. Are their bankers not “greedy”?

  13. Some us knew this would happen, because we were dealing with the CRA in the trenches. Sadly, professional ethics prevent me from telling the tales, and those involved in issuing the loans are prevented from spilling the beans because of fear. We’re not talking about huge mortgage lenders; we’re talking about the “Mom and Pop” banks of the American Heartland. It sickens me, when I think about it.

  14. Fuel for the fire was provided by an incredibly shortsighted faith in raw data. Manual underwriting had always been the standard for loan approval. Exceptions were made when lending institutions could assess the character and personal situation of a borrower through face-to-face interaction. Not unsurprisingly, many such “sub-prime” loans performed much better than one might expect. Given only quantified historical data — such things as past credit behavior, length of employment, etc. — the new credit score wizards made conclusions that were not entirely warranted. Furthermore, the financial wizards then used these skewed risk assessments to project the performance of loan pools and valued them accordingly in their dealings. It all looked so good — so scientific. None of that messy subjectivity and vulnerability to claims of unfair preference.

    I once asked a Freddie Mac executive at a secondary marketing conference how the credit score could capture the personal component of lending decisions. He coldly replied, “I think the statisticians know more than you do.” It was his way of saying, “The debate is over.”

    Many mortgage banking operations don’t keep loans. They sell them to Freddie, Fannie, Countrywide, etc. and keep the servicing rights (collect the mortgage payments, keep a bit, and send the rest on to the real mortgage holders). Under this system, you had to underwrite the loans to the standards set by the organizations you were going to sell to. When the big guys started accepting sub-prime product, naturally, everyone in the business began making loans to anyone who came through the door. They just pawned the moral responsibility off on the final lender, saying “They say it’s okay, so I can make this loan.”

  15. – The housing giveaway for pimping votes with Barney Franks acting as a late comer good news barker was an obvious scam from day one with CAR used as the front men so this is not news. Franks should be sitting in a FED jail right now, but too many Washington Pols got rich off him and the Dems, so they’ll be no investigation or consequences.

    – It will all be put to rest in 20 years when a history is published. Histories always cleanse the dirt off DC for a few moments.

  16. ACORN was always marching on eager lenders.

  17. You don’t need Clinton’s sooper-sekrit papers to know this. You just need to know the magic spell:

    NYTimes 1999/09/30 “fannie mae”

  18. No, Sdferr, I mean actually short-circuiting Bolsheviks with wires hooked-up to wall outlets – that kind of thing.

  19. Naturally, if I may be permitted that expression, apologies to the extent I misconstrued your meaning Bob, though I have to laugh as I confess I’m still not clear what to expect involving 110-120 v circuits in the process. A jolt obviously, but with what effect?

  20. Well…uproarious and sinister laughter on my part.

  21. 110V is better than 220V because 220 will knock a person off the circuit while 110 will keep you hangin’ on until someone else knocks you off of or shuts the power off. DAMHIKT.

  22. It’s the amps that’ll kill ya.

  23. Ok,

    Time to reload, see you Outlaws at the next MAAP brief.

  24. clintons are trash

    there’s not a whole lot more to say about them

    as far as your flibbertygibbet little country’s presidency goes

    if you elect trash with tits you get trash with tits

    this is entirely 100% foreseeable

  25. No one who has been paying attention would find this to be a surprise. What’s surprising is that any evidence was permitted to survive.

    Still, I blame Bush and his preachy dream about people being invested in their community through home ownership. And I deduce the existence of time machines.