The Wallison dissent

Steve Sailor, is as always great reading, and he issues some comments that on the Wallison dissent that everyone who wants to understand the financial crisis should pay attention to.

Peter Wallison tells us

Profit had nothing to do with the motivations of these firms; they were responding to government direction.

Rather than direction, they were responding to government pressure and persuasion.  Basel gave government not so much the power and authority to dispense off budget funds to friends and voter blocks, but rather to heavily influence and pressure banks to dispense off budget funds to friends and voter blocks.  Since government, or those authorized by government, decide what is risky and what is not, rather than those actually making the loans, any loan that is politically correct is unlikely to be deemed risky.

Steve Sailer tells us:

Among profit-seeking lenders there will always be optimists and pessimists about the ability of marginal borrowers to pay back their home loans. Government policy from 1991 onward was heavily biased toward being nice to optimist lenders and not nice to pessimists lenders This nurtured a climate in which the businesses of the optimists grew and people in the middle shifted toward optimism, while pessimists moved toward other lines of work.

Consider Angelo Mozilo of Countrywide, who on January 13, 2005 catastrophically pledged $1,000,000,000,000.00 in mortgages by 2010 to minority and lower income borrowers. The government can’t force anybody to lend a trillion bucks to bad risks. A billion dollars, sure. But a trillion? The lender has to want to do it.

That doesn’t mean that politicians weren’t intimately involved in cultivating Mozilo’s delusional state of mind where he thought he was doing well by doing good and vice-versa.

There’s no question that Mozilo was first prodded down this path by the hoopla over the stupid early 1990s Boston Fed “study” of discrimination in mortgage lending. Crucially, the Clinton Administration’s threat in 1994 to extend the Community Reinvestment Act paperwork requirements to nonbanks like Countrywide led Mozilo to sign a treaty with Clinton’s HUD secretary Henry Cisneros promising to lend like Countrywide was covered by the CRA.

But, Mozilo became infatuated with Cisneros’s “vision” and put Cisneros on Countrywide’s board. They both became convinced that lending vastly more to Hispanics was a great business idea.

If you didn’t believe that, well, you’d better keep your mouth shut because you could be sued for discrimination, and regulators could make your life hell. So, the government helped change the culture of mortgage lending in part by selecting more credulous people like Mozilo for favorable attention and giving more skeptical people a hard time.

Another example is Kerry Killinger of Washington Mutual. He survived 29 Community Reinvestment Act reviews as he bought up other lenders by making huge pledges of minority and lower income lending , up to $375,000,000,000 for the acquisition of Dime Bank. So, there is a selection effect. The government gave the thumbs up to optimists expanding and the thumbs down to pessimists. So, the culture of lending shifted toward credulity.

On Steve Sailer’s blog you can find much useful research you cannot find anywhere else, because it is just too horribly politically incorrect, but he does suffer from the fallacy of seeing jooz everywhere, and therefore believing the market is rigged by jooz against people like Steve Sailer. I hope some day to debate him on this topic – I argue that Jews are converts to progressivism, rather than progressivism being a sect of Judaism, (the Mencius Moldbug theory that progressivism is crypto calvinism) and that progressives were ruling the system and stealing all the money back when progressives were still nominally Christians, and did not allow any Jews to get in on the vig.

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