Posts Tagged ‘CRA’

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Where the money went

Monday, February 15th, 2010

The government has been shuffling the money around to obfuscate who stole it.  It lends money, and then announces that there is no problem, the money has been paid back.

But after much fiddling, the money has mostly come to rest, in that the government is now the proud owner of about one trillion dollars of mortgage backed securities guaranteed by Fannie, Freddie, and the FHA, plus some Fannie, Freddy, and FHA debt.

The first graph in the above link is the money wizzing around in complicated circles to obfuscate who is at fault, the second graph is the bailout of private entities, other than General Motors, and the third graph is primarily the bailout of Fannie, Freddy, and the FHA.

That these Mortgage Backed Securities are “Fully guaranteed by Federal Agencies” implies that the vast majority of the crisis, the vast majority of the bailout, was dud mortgages rubber stamped Fanny, Freddie, and the FHA, that privately issued mortgage backed securities have been liquidated – that the dud mortgages underlying privately issued mortgage backed securities have been settled by foreclosure and bancruptcy, but the dud mortgages underlying Fannie, Freddy, and FHA issued mortgage backed securities are on the tax payers tab to the tune of about a trillion dollars.

Overtime, as the mortgages are resolved, the trillion dollars of mortgage backed securities will diminish with time.  In proportion as they were worthless, the agency debt will correspondingly increase.

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The vast majority of defaults were black and hispanic

Friday, August 7th, 2009

Hat tip Steve Sailer who provides the breakdown of defaults.

The proximate cause of the international crisis is that the US$, the international reserve currency, lost much credibility.  The proximate cause of the US$ losing credibility was massive defaults by blacks and Hispanics, and the proximate cause of the massive defaults by blacks and Hispanics was affirmative action lending to people whom I could tell at a glance from twenty paces were highly unlikely to repay their debts.

In the last days before the crash, I saw in California a steady parade of people buying expensive houses no money down whose own mothers must have been reluctant to lend them ten dollars. Lax though credit standards were, not one of them would have been able to borrow money had he been non Hispanic white.

Laderman and Reid of the Federal Reserve Bank of San Francisco have done the unthinkably politically incorrect, and though they do not directly reveal the proportion of defaults that were affirmative action, they tell us:

We also find that race has an independent effect on foreclosure even after controlling for borrower income and credit score. In particular, African American borrowers were 3.3 times as likely as white borrowers to be in foreclosure, whereas Latino and Asian borrowers were 2.5 and 1.6 times respectively more likely to be in foreclosure as white borrowers.

They also argue that CRA loans were just fine:

a CRA lender significantly decreases the likelihood of foreclosure

They obtained this contradictory result by controlling for race – in other words, they are not saying CRA loans were unlikely to default, but that a CRA loan made to a non hispanic white is (unsurprisingly) unlikely to default – in other words, affirmative action loans have no harmful effect, indeed beneficial effect, to the extent that they were not in fact affirmative action loans.

They do not directly tell us what proportion of defaulters were black and Hispanic, but since the great majority of defaulters were subprime, and 77% of subprime borrowers were black and Hispanic, and blacks and Hispanics three times more likely to default than whites …

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Creating the next crisis 2

Friday, June 26th, 2009

Remember all that junk mail:

Bad credit?
No credit?
No problem! Buy the house of your dreams with no money down!

Well thanks to the great Bush-Obama stimulus package, looks like you will be seeing it again.

When the government says that private lending has dried up, this is code for the strange absence of no money down loans to people with bad credit.  People I know, such as my sister in law, who had money and good credit found that lenders rolled out the red carpet for them.  There was never lending crisis for traditional borrowers.

When the government says there is a lending crisis, it means the problem is that a drunken no-hablo-English wetback seems to be finding a bit of trouble borrowing.  But never fear.  Your ever helpful and benevolent government is remedying this terrible market failure.  Whatever would we do without regulation and subsidy?

The FHA is now providing one hundred percent government guarantees for loans to people with bad credit.  Supposedly the borrower must put three and a half percent down, but since real estate agent fees, mortgage broker fees, and assorted charges theoretically add up to slightly over ten percent, a clawback from the various people involved can and does reduce this to zero.  When I transact a house, I usually manage to clawback four to six percent from these various charges, so if I was purchasing a house with what on paper was a three and half percent down loan, and managed to get my usual clawbacks, I would get the house and two percent cash in hand – negative money down.  And that is without a kickback from the seller. Of course that is why the lenders would rather do the loan with a drunken no-hablo-English wetback, who is unlikely to be so fierce at clawing back and chiseling down their fees as I am.

When you buy a house on a loan with small money down, you usually also get an under the table kickback from the seller.  With a kickback from the seller and clawbacks from agent and broker fees, three and a half percent down vanishes fast.

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Creating the next crisis:

Wednesday, June 17th, 2009

In a free market, financiers who take stupid risks lose money, and cease to be financiers.  The core of the Obama Bush interventions is to ensure that financiers who take stupid risks continue in business and continue in charge of other people’s money.

In the Washington Post, Obama’s chief financial advisers explain their program:

In theory, securitization should serve to reduce credit risk by spreading it more widely. But by breaking the direct link between borrowers and lenders, securitization led to an erosion of lending standards, resulting in a market failure that fed the housing boom and deepened the housing bust.The administration’s plan will impose robust reporting requirements on the issuers of asset-backed securities; reduce investors’ and regulators’ reliance on credit-rating agencies; and, perhaps most significant, require the originator, sponsor or broker of a securitization to retain a financial interest in its performance.

“How big a financial interest?” I hear you ask.

Summers is a little bit vague, about this, but if you dig, the answer is five percent – enough to make a difference, but not enough to make a significant difference, not enough to deter banks from making irresponsible loans.

The fundamental problem is that the government wants banks to continue make loans to irresponsible borrowers in important voting blocks, borrowers who should not be able to borrow money, and therefore must maintain a regulatory structure that enables bad loans. A transfer of wealth from a concentrated interest group (financiers) to an important voting block (hispanics) is not politically feasible.  So instead, such dud loans must ultimately wind up being financed by the government.

The government issues regulations that require financiers to refrain from “discriminating against” a voting block – which seeming benefits the voting block at no cost to the government. But there is no such thing as free lunch.  Who will pay?

You can be sure a concentrated interest group is not going to pay.

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Securitization

Wednesday, May 6th, 2009

From the point of view of oligarchs and crony capitalists, the crisis is not that a lot loans were made to no hablo English wetbacks. The crisis is that people are rejecting securitization of debt.

The Obama regime’s capitalism smashing measures are intended not to destroy capitalism, nor to install socialism, but to restore securitization of debt. This is socialism for the financiers, not for the proles:  Crony socialism, crony capitalism, a fascist economic order.

Regular old fashioned loans are going through just fine. There is no credit crisis, the financial system is not freezing up. Securitization is freezing up, and it @#$% well should freeze up.

When debts are securitized, many different debts of many different borrowers are piled together into a great big pool of debt, and then shares in the pool are sold to lots of creditors – which means that there is no one person responsible for verifying that any one particular loan is sound, that the assets securing the loan are worth what they are supposed to be worth, that the person responsible for making payments on the loan can read and write, that he speaks the language that the papers that he signed were written in, that he was sufficiently sober when he signed them to remember signing them, or even that the paperwork exists and is in good order.

For securitization to work, the particular organization that arranged the loan, and the particular people in the particular organization, would have to remain responsible for that loan.  The debtor would have to be making payments through the people that arranged the loan for the life of the loan.

Securitization leads carelessness with large sums of other people’s money. Such carelessness leads to crime. Crime destroys the trust that is necessary for the economic system to work. Securitization must stop. If securitization continues, capitalism will end. By and large, those who favor continued securitization are wealthy criminals, who personally benefited from stolen money, as over the years carelessness slowly became indistinguishable from deliberate fraud.   The problem before Obama was not lack of regulation, but that the foxes were regulating the chickens, and now under Obama the foxes are still regulating the chickens.  Each Obama intervention has the effect of keeping the criminals in power over other people’s money, resisting the natural propensity of capitalism to purify itself through creative destruction.

Securitization was born in fraud:  The original motivation for securitization was the 1995 Community Reinvestment Act. If the government is pressuring you to make loans on the basis of race, rather than willingness and ability to pay one’s just debts, you want to get rid of the politically correct mortgages to some other sucker as fast as possible.

Securitization of debt is only legitimate when the people that arranged the loan remain linked to the loan.  Otherwise, securitization is a scam, as the origins of mortgage securitization demonstrate.

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Trillion missing, top accountant dead

Thursday, April 23rd, 2009

David Kellerman, the acting Chief Financial Officer and Senior VP at
Freddie Mac, was found dead early this morning from at his home in Virginia. It is described as an apparent suicide.

The press is rightly comparing this with the very similar “suicide” of Enron’s top accountant.

When large sums of money disappear, the person who knows most about where the money went often, by an interesting coincidence, winds up with his mouth permanently closed.

Freddy Mac and Fannie May have had accounting scandals before, but during the housing boom, all their sins were forgiven, and the offending executives retired with golden parachutes. This time around, the public is in a less forgiving mood.

There is an effort to link this murder with Obama, which is unreasonable because he has nothing he needs to cover up yet, not being in charge when the money vanished. On the other hand, his treasury department is full of friends of Obama who do have something to cover up.

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Smashing capitalism

Wednesday, April 1st, 2009

President Barack Hussein Obama tells us:

Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.

This reads like something out of “Atlas Shrugged”.

I predict fifty percent inflation or so over the next three or four years – and that is if we eventually turn back from this course, or at least stop walking along it.  If, on the other hand, this goes on, with the government taking responsibility for one thing after another, as each intervention creates a crisis bigger than the last crisis, leading to more interventions, then I predict hyperinflation and widespread inability or unwillingness of government to provide order and protect property. Obama is not going to get under your car and fix it, and as the government takes on an ever growing multitude of tasks it is incapable of performing, its performance in its area of core competence (hurting people and breaking things) will deteriorate.

This crisis did not start with Obama, it did not even start with Bush.

During the final years of the Clinton presidency, Clinton greatly strengthened the CRA, which was glowingly reported by the newspapers

More than $1 Trillion Invested through CRA

Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.

A more accurate report of the same facts would be

Politicians shovel one trillion dollars of off budget money to irresponsible and improvident members of narrowly targeted voting blocks, for which taxpayers are going to wind up on the hook

Government regulation winds up as off budget handouts to voting blocks (in this case mostly Hispanics) and well connected insiders (in this case some elements in Wall Street).  Crisis ensues as the bill comes due. To maintain the superficial appearance of normality, there is a drastic increase in intervention, but the synthetic normality is a mere facade, like putting makeup on a corpse.

We now have trillions of dollars of capital flowing away from well managed businesses, to businesses with implicit or explicit government guarantees – businesses that will rapidly lose that money – a huge increase in the already huge off budget expenses of government, in addition to the huge and rapidly growing on budget deficit.  Unacknowledged off budget government expenditures far exceed government’s ability to tax.  They will not necessarily exceed government’s ability to borrow – yet.

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Geithner’s plan explained

Wednesday, April 1st, 2009

President Barack Hussein Obama tells us:

Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.

This reads like something out of “Atlas Shrugged”.

I predict disturbing inflation or so over the next three or four years – and that is if we eventually turn back from this course, or at least stop walking along it.  If, on the other hand, this goes on, with the government taking responsibility for one thing after another, as each intervention creates a crisis bigger than the last crisis, leading to more interventions, then I predict hyperinflation and widespread inability or unwillingness of government to provide order and protect property. Obama is not going to get under your car and fix it, and as the government takes on an ever growing multitude of tasks it is incapable of performing, its performance in its area of core competence (hurting people and breaking things) will deteriorate.

This crisis did not start with Obama, it did not even start with Bush.

During the final years of the Clinton presidency, Clinton greatly strengthened the CRA, which was glowingly reported by the newspapers

More than $1 Trillion Invested through CRA

Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.

A more accurate report of the same facts would be

Politicians shovel one trillion dollars of off budget money to irresponsible and improvident members of narrowly targeted voting blocks, for which taxpayers are going to wind up on on the hook

Government regulation winds up as off budget handouts to voting blocks (in this case mostly Hispanics) and well connected insiders (in this case some elements in Wall Street).  Crisis ensues as the bill comes due. To maintain the superficial appearance of normality, there is a drastic increase in intervention, but the synthetic normality is a mere facade, like putting makeup on a corpse.

We now have trillions of dollars of capital flowing away from well managed businesses, to businesses with implicit or explicit government guarantees – businesses that will rapidly lose that money – a huge increase in the already huge off budget expenses of government, in addition to the huge and rapidly growing on budget deficit.  Unacknowledged off budget government expenditures far exceed government’s ability to tax.  They will not necessarily exceed government’s ability to borrow – yet.

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The crisis explained

Saturday, March 28th, 2009

I have been seeing a lot of references to “a speculative bubble”

Nope. They were not speculating.

The crisis consisted of people, mostly members of protected minorities with nothing to lose, buying houses they could not afford with borrowed money in the expectation that they would go up, and if they went down, it was the bank’s problem.

So the people who bought houses were taking no risk, since mostly they bought them with 100% loans, had no credit rating and no assets to lose.

So were the banks making the loans taking a risk?

No, because it was not the bank’s problem, because the loans were for the most part guaranteed by Freddy, or Fannie, or AIG – all of which had implicit government guarantees, and all of which had an AAA rating.

So why did AIG and the rest have an AAA rating?

AIG and the rest were issuing naked puts greatly exceeding their total capitalization, which pretty much guaranteed that sooner or later they would go broke in a big way. So why AAA?

Moody’s, who issued the ratings, was tweaked on this, and replied that it was unthinkable that the government would allow these institutions to fail. So it was not true that nobody knew what was happening. All the insiders knew what was happening, the regulators knew what was happening: they knew that businesses were taking big risks for big money in the expectation that if they won, they won, and if they lost, the government would take care of them. It was government policy. People have been complaining about this for years.

The fundamental cause of this crisis is government regulation: Governments cannot be trusted with money. They think only of short term political gain, so dispense money to the loudest pressure group, in this case those represented by ACORN, rather than to people who are likely to repay it with interest. In this case, the regulators decided that “traditional” standards of credit worthiness were racist and discriminatory, because too many Jews, and not enough Blacks, met “traditional” standards.

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The cause of the crisis

Wednesday, December 10th, 2008

Capitalism and free markets are prone to bubbles, and a great deal more prone to bubbles when speculators can expect that the government will print as much money as needed to keep the bubble going, but bubbles do not in themselves lead to massive financial defaults, because normally lenders only lend to people who are in a position to repay, even if the bubble pops.

If one reads what purport to be analyzes of the crisis, they usually use windy evasive language such as “financial conditions deteriorated” – which tells us nothing about what was happening except that it is something that cannot be spoken, for fear of getting in trouble.

“Financial conditions deteriorated” in that people were not making payments on their loans, but if one was to say such a thing, this would immediately imply the question:  Which people are not making payments on their loans? And that is a question that no one dares ask, for fear of the answer.

The answer, of course, as everyone knows, but no one dares say, is that members of protected minorities, the beneficiaries of government mandated affirmative action lending, are not making payments on their loans.

Foreclosures in Palo Alto west of the freeway (white and some chinese, chinese being an unprotected minority):
One foreclosure at the time I post.

Foreclosures in Palo Alto east of the freeway (black and hispanic, all protected minority):
ninety eight foreclosures at the time I post.

Foreclosures in Gilroy (wholly hispanic, all protected minority)
two hundred and sixty three foreclosures at the time I post.

If no money down loans had been available to white people with no income, no job or assets, there would have been a lot more defaults in Palo Alto west of the freeway.

The distribution of foreclosures by suburb implies that ninety nine percent of the defaulters are blacks and Hispanics, the beneficiaries of affirmative action lending.

All house purchase loans are governed by affirmative action, for since 1999 CRA requires that race must be reported on all house purchase loans, and regulators are required to take the racial distribution all loans into account when making all regulatory decisions – which implies that if a banker does not make enough loans to members of protected minorities he will be punished, but to preserve deniability, nominally punished for something completely unrelated to race.

The financial crisis is wholly caused by affirmative action lending enforced by HUD and CRA.

Therefore, if the same standards had been applied to people in Palo Alto West of the freeway, as in Palo Alto east of the freeway, if CRA and HUD had not imposed racist lending policies in favor of protected minorities, there would be no financial crisis, therefore no need for financial bailouts.

The defaulters are not normal middle class people like you and me. Most of the people that I saw buying houses in Sunnyvale in 2006 were no hablos English, and I could tell in two heartbeats at twenty paces that there was no way in hell they were going to make the payments – I conjectured that they were functioning as straw men for a purchaser more literate than themselves, and perhaps of a race less eligible for a loan with no money down, no credit record, and no evidence of income or assets.  In Malaysia they call these “Ali Baba loans” when a member of the favored religion (Islam) fronts for a member of a disfavored religion.

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