Don’t blame working poor for greed shown by lenders
Blame the hedge fund managers. The subprime mortgages. Mismanagement at Fannie Mae, Freddie Mac. Detroit automakers’ stubborn refusal to build more energy-saving vehicles.
Blame the regulatory apathy of the Bush years. The bookkeeping tricks. (War? What war? Not in W.’s deficit numbers.) The unregulated credit default swaps. The blind devotion to Wall Street without a thought for Main Street.
Most of all, blame unadulterated greed.
Just don’t blame the working poor and middle-class folks who bought into the American Dream that if you work hard, you can one day own your little castle. Don’t play class warfare after a decade of corporate welfare.
Conservative talking heads and some members of Congress continue to blame the subprime loan mess—which led to the housing collapse—on a 1977 law meant to help poor communities build wealth. The Community Reinvestment Act (CRA) requires banks and savings and loans to make credit available to poor communities that bank with them. In the 1990s, then-President Bill Clinton put more bite into the law by tying those institutions’ expansion to their efforts to make responsible loans to working folks.
Remember red-lining by banks? Because those of us who grew up here certainly remember the abuses, when blacks and Hispanics couldn’t get a break on a loan for a business or a home, even when non-Hispanic whites of comparable means got theirs.
Here’s the truth: Most sub-prime loans weren’t made by banks and savings and loans, which are subject to CRA rules. They originated with mortgage service companies—remember all those “deals” online?—or affiliates of banks that aren’t beholden to CRA rules.
Ellen Seidman ran the federal Office of Thrift Supervision from 1997 to 2001, which oversaw savings and loans. She writes in The Ladder, a blog at the New America Foundation, that “while many of us warned against bad subprime lending before the turn of the millennium, the massive breakdown of underwriting and extension of risky products far down the income scale—without bothering to even check on income—was primarily a post-2003 phenomenon. To blame a statute enacted in 1977 for something that happened 25 years later takes a fair amount of chutzpah.”
And here’s the kicker: The Bush administration weakened CRA enforcement in 2005, and that’s when the “creative” adjustable-rate mortgages shot up among banks and thrifts. Even then, they make up only about 20 percent of the subprime explosion, according to congressional testimony.
Were there poor people who got in over their heads? Absolutely—and the vast majority weren’t poor. Many were well-off speculators.
We need more financial leaders such as Leonard Abess Jr., the Miami banker who quietly turned over $60 million, part of what he earned from the sale of City National Bank, to 399 staffers—past and present. Not because he had to but because he believes in rewarding the hard work—at all levels—of those who helped him grow the bank.
Still, the cries of “class warfare” are only beginning in Washington. Next will come the GOP spin about President Obama’s push to reinstate marginal income tax rates for the richest 2 percent of Americans to what they were in 2000—39.6 percent. Bush pushed Congress to drop them to 35 percent.
Clinton delivered a $300 billion surplus to Bush, and the economy—except for a short dot.com bust in 2000—was rockin’. During the Eisenhower years, this country’s boom years that created a huge middle class, the marginal rate was 91 percent!
Myriam Marquez is a columnist for the Miami Herald. Readers can reach her by e-mail at mmarquez@miamiherald.com.
Mar 4, 2009 at 12:59 p.m.
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In the heyday of the housing bubble, it was possible to inflate your earnings on paper, apply for a $300K loan on a $305K house, and close in two weeks. The buyer would flip the house in a few months and make money on the deal. Speculators were doing this left and right.
Do we think that the little guy making $40K a year was doing this? Maybe, but I suspect many more were in the $150K-$200K range who tried to make a killing. This was happening anywhere in the country where housing was in demand. When the market stopped dead, it was these speculators who walked away leaving the banks deal with the mess. More accurately, the institutions that were holding the securities based on these loans were the ones to take a hit.
What I still can't believe is that Fannie and Freddie et al could allow this in the first place. It was plain as day that this could not go on forever? We will eventually learn more about this masterful piece of fraud. Lets hope our current congress and administration keeps digging.
Mar 4, 2009 at 10:20 a.m.
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kiowa, a bill was passed in the House to re-regulate Fannie and Freddie, co-sponsored by the Republican who chaired the Housing and Urban Development Committee, and the Democrat ranking member, Barney Frank, in 2005. Bush promised to veto it, and the Senate never brought it up. Bush insisted, "Fannie and Freddie meet ambitious new goals for low-income lending." He also said, "I will use the mighty muscle of the Federal government to meet these goals." New York Times, 12/20/08. Bush got Congress to spend up to $200 million a year to help first time buyers with down-payment and closing costs. The Democrats finally got a bill passed, but not till July of 2008 did Bush sign it, after the poop hit the fan!
Mar 4, 2009 at 9:26 a.m.
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RetiredAirForce I'm with you. Those of us that are responsible with the money we do have are being punished for those that aren't. They want to live big but have no means to do so. They can't afford a house because they don't work and have nothing but yet the banks let them have funds they can't afford to pay back. Therefore ,WE, end up paying for it by higher interest rates. What is wrong with this picture? I understand jobs aren't the easiest to come by right now but lots aren't even trying .They have an attitude of YOU OWE ME. I understand the banking community and loan companies have to take some responsibility but lots of the people losing there homes have to take there share also. They live way beyond there means and have based there lives on what can I buy now. Send me my food stamps so I can use the check they send me, not to buy food, so I can get a $400 leather jacket and alcohol and cigarettes. I see it everyday where I work. I'm paying for there food and everything else they have because they don't work. I want a $400 leather jacket too.
Mar 4, 2009 at 12:31 a.m.
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Janesvillian:
Both companies were "private" entities that were (are) traded on the NYSE. However, they are fully backed by the government. My point was they had ZERO regulation. For all those on the left saying this was the result of no regulation, greed, ext... great...Where was the regulation and over site for the two companies that were GOVERNMENT BACKED?? I have no problem with putting some of the blame on these greedy mortgage companies who were predators on the weak, but don't be saying it was Bush and the Republicans solely; for not having any over site on these companies, when you had a two mortgage GIANTS sponsored by the government who had no over site at all either. Companies that had HUGE ties to the Democratic party.
My basic point is that both parties had their fingers all over this mess, and each side just points to the other. Now we want the government to "fix" this whole thing when they are the ones who propped the whole thing up, and created the collapse.
Mar 3, 2009 at 11:56 a.m.
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I think this column hits the nail on the head. While there were a lot of families with lower income getting loans that were higher than they might have been before the CRA act, it was the millions of speculators who used no-doc loans to get a house that tanked the system. 2003 was just about the time that it all started to come apart. The author fails to mention that at about that time, financial inventors on wall street were starting to repackage sub prime loans into so called AAA rated securities and insurers like AIG were backing them up.
When my wife and I applied for an equity loan in late 2007, our lender in IL was still pushing a no-doc as the easy way to get a loan, even though we could easily provide financial data to support the loan. Had we been out work and making it up, we would have still received the loan? This was going on for years. Yes, greedy financial firms are the heart of this mess.
Mar 3, 2009 at 4:27 a.m.
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Can we all agree that there was an abundance of greed and irresponsible behavior at every level? Politically biased denial allowed this to happen and continues to deflect responsibility to "those other guys". Strip all of that away and only two categories remain: those who acted responsibly and those who didn't.
Mar 3, 2009 at 2:47 a.m.
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kiowamohican, note that Fannie Mae and Freddie Mac, though government-sponsored, were private stock companies. They were permitted to chase higher profits for their stockholders under lax oversight by HUD, as the Bush administration preferred an "ownership society" to other forms of housing for lower-income families. The taxpayers and the stockholders (the latter all but wiped out) have paid dearly for these mistakes (perhaps when the economy recovers the taxpayer investment will be recouped; these are certain to be reprivatized).
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I don't know of anyone who absolves FNMA and FHLMC of their role, but it is not as critical to the mess as you suggest. They're only a fraction of the subprime market, and the mortgages they held have had lower default rates.
Mar 3, 2009 at 2:39 a.m.
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Greed. Yes, it was all greed, greed from those that wanted more without knowing how they could afford it. It will now be up to the many of us who decided to purchase responsibly and not go into debt beyond our means to pay for the mistakes made by others. I too am greedy; I greedily would like to keep my money that I decided not to squander irresponsibly instead of paying for those irresponsible mistakes made by others.
Mar 2, 2009 at 11:04 p.m.
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Funny that these people who want to put all the blame on the greedy hedge funds, and power brokers, never seem to want to mention the GOVERNMENT backed Fannie Mae and Freddie Mac in the mess. I mean they were the ones who had ZERO regulation, and were backing all these home loans. The government mismanaged Fannie and Freddie for decades; used it as a massive political slush fund when the housing market was good. They then proceeded to bankrupt the both companies at the tax payers expense. Now the same ones who got us into the mess, are the ones who claim to have the answers to getting us out of the melt down. This is beyond laughable. I love how guys like this writer love to blame those evil, greedy, wall street folks, but always seem to forget the biggest most greediest thieves of all, and that is your elected officials.
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