by publius
Megan McArdle cheers on John Carney in a misguided attempt to once again blame the housing meltdown on the CRA — i.e., a 1970s law intended to limit loan discrimination. She writes:
who are unwilling to admit that regulation, too, can produce hideous
unintended consequences. . . . Regardless of how much causal blame you assign it, the financial crisis has certainly proven that the CRA seems to have been a very, very bad idea.
Essentially nothing in that excerpt is true. Felix Salmon and Ryan Chittum hopefully put the stake through this argument, but it keeps appearing (the Chittum post is more comprehensive). To sum them up — the bad loans at the heart of the meltdown came overwhelmingly from unregulated, non-bank lenders who weren't even covered by the CRA. In addition, the CRA loans did very well. And there's basically not a shred of evidence that the CRA led to the meltdown. And you can't evade that 100% lack of evidence by citing vague "mentalities" and drawing imaginary causal lines constructed entirely of ideology.
just a note to please keep comments civil — if you’re inclined to attack her post, plz attack substance, not personal. thx all.
McArdle and Carney are right of course. They are talking about the top secret provisions of CRA that require the lending agencies to badly overrate MBS, and buyers to rely solely on the ratings, and further require the buyers to use maximium leverage.
Note that these secret provisions also prohibited non-CRA lenders to from requiring documentation from marginal loan applicants.
plz attack substance
It’s a Megan McArdle post. Is there any substance to attack?
Barry Ritholtz demolishes these arguments here and here.
Well, the merits of the argument aside, that’s a pretty misleading excerpt — you elide her statements acknowledging that the CRA is not the only or necessarily even the primary cause:
KenB,
Not so misleading. Publius criticizes McArdle for
citing vague “mentalities” and drawing imaginary causal lines constructed entirely of ideology.
That seems right to me. Consider this from McArdle:
But the relaxation of credit standards that allowed the meltdown did start, as far as I can tell, with the CRA. And perhaps more importantly, the CRA, and the mentality behind the CRA, made regulators extremely unwilling to intervene.
Regardless of how much causal blame you assign it, the financial crisis has certainly proven that the CRA seems to have been a very, very bad idea.
Why the financial crisis proves this is not explained.
An excerpt where she makes categorically false assertions about the CRA is a misleading one? Indeed, how gracious of her to acknowledge elsewhere in the paragraph that the CRA isn’t solely to blame, entirely bad idea though it’s turned out to be.
To be fair, McArdle is not solely to blame for Abraham Lincoln’s assassination, either. But the assassination has certainly proven that letting her into the theater that night seems to have been a very, very bad idea.
Sadly, publis’s first comment is quickly ignored. There is something about MM that brings out misogynist bile on the left. When are other similarly intelligent libertarian commenters like Tyler Cowen and Will Wilkinson called “douchebags”.
I don’t believe that any long-standing policy is responsible for the crisis (although some may make the system more or less resilient in response to it). But she’s quite right that the policy goal of getting more people into home ownership involved more measures than the CRA and some of these explain why the housing bubble was looked on with favour in many quarters. The sin is as much of the right as the left.
Since we know Megan comes here periodically to comment, I’m waiting for her rebuttal. I’m not sure what she can possibly offer except again repeating that something (CRA) that appears to be 1) the antithesis of the problem she’s identifying and 2) that is highly successful” is for some inexplicable reason “a very, very bad idea.”
Why are we discussing her work still? She is apparently highly intelligent, but she seems entirely unwilling to seriously engage difficult arguments. But we’re talking about it so I guess she’s happy. It’s a waste of everyones time taking this stuff seriously, however.
When are other similarly intelligent libertarian commenters like Tyler Cowen and Will Wilkinson called “douchebags”.
I don’t know about Wilkinson, but maybe Cowen escapes the label by actually thinking.
Did policies such as the Community Reinvestment Act significantly worsen the housing bubble and the subsequent collapse? Basically not, although in my view these were bad policies for other reasons.
I think it’s been explained any number of times to Megan, patiently and painstakingly, as to why this is not just false, but absurdly false.
The only real question then is why she is attempting to peddle this hokum yet again. I suspect it’s one of those things about cred with certain people whom you hope will employ you at some future date. That Atlantic gig won’t last forever, which might explain the drop-off in the quality of posts (I know what you’re going to say, so don’t say it) of late.
The only real question then is why she is attempting to peddle this hokum yet again.
When I look at things like this, my best guess is that she’s just incapable of thinking rationally when her biases come into play. But maybe you’re right and she’s just really dishonest. I still don’t see why she’s worth discussing let alone reading.
Bernard, I was just struck by the fact that he turned a “split-the-difference” intro into a polarizing one by eliding the other half.
“there’s basically not a shred of evidence that the CRA led to the meltdown. And you can’t evade that 100% lack of evidence by citing vague “mentalities” and drawing imaginary causal lines constructed entirely of ideology.”
Sure you can, You can evade evolution by asserting the truth of creationism, and you can evade admitting that the earth is round (okay, spherical) by asserting that it’s flat. Your effort won’t accomplish much if no one pays attention, but I can tell you from personal experience that the CRA-caused-it-all meme is alive and well and inflicted on me routinely by colleagues.
You can still fool some of the people all of the time, etc. And it doesn’t hurt to have a gig at the Atlantic to start you on your way.
In fairness to Ms. McArdle, she seems to have the idea of political contamination in mind: once you order the banks to ignore their traditional criteria of credit-worthiness, then somehow this crack in the dam must lead to a complete degeneration of all credit-worthiness standards.
That raises an obvious question: have credit assessments ever not had political ramifications? I would argue they always have; the behaviour the CRA aimed to prevent, such as “red-lining” communities in which banks refused to make loans had specific political effects. Did the quality of credit assessments decline as a result of legislation such as the CRA? I would find it difficult to believe they have, considering such matters as the sovereign loans debacle of the 70s to today, and of course considering that most of the defaults did not take place in the areas that lawmakers passed the CRA to help.
Finally, I would question the basic assumptions behind the argument that the CRA somehow “caused” the sub-prime meltdown. The CRA came into existence to combat what many people saw as a manifest injustice: banks which arbitrarily determined people’s credit-worthiness as essentially null if they lived in certain areas kept specific populations from access to opportunity. Those areas had a high correlation with race. The argument that once deprived of the opportunity to practise what looks suspiciously like discrimination, the poor confused bankers cannot help making flagrantly imprudent and unethical loans strikes me as bad logic and a dangerous basis for social policy.
MM has an essential theme to many of her substantive posts, to wit:
1. Government can’t help.
2. When government tries, it makes things worse.
Since this is her core philosophy, there is little point in debating the evidence. When there is no evidence in support of her position, as is so for the CRA post, she invokes such absurdities as “mentalities”, ie, the problem is that the government is trying to help.
But that’s not fair, because “split-the-difference” is wrong. Let’s agree that there is less truth to evolution than what ‘pro-evolutionists’ would have us believe as well as less truth to creationism than the what the Theists would like to teach and split the difference. We could, for example, say that God created the world around 6,013 years ago complete with faked evidence, but that since then evolution is in play.
Doesn’t sound so good, does it?
It also tends to be bad in the long run because those “split-the-difference” folks seem to want to run this one repeatedly, so that one-half becomes one-fourth becomes essentially their original position. Look at the abortion ‘debate’, for example.
There is something about MM that brings out misogynist bile on the left.
Not from me. Her gender is totally irrelevant to me; it’s her disingenuous arguments, and the way she extrapolates one example of malfeasance here to criticize the VA. It’s intellectually lazy and dishonest. I remain somewhat amazed why people continue to cite her.
In any event, her failure to mention independent mortgage lenders like Countrywide. who, unbound by regulation made a sizable number of subprime loans.
That should say “her failure to mention independent mortgage lenders like Countrywide. who, unbound by regulation made a sizable number of subprime loans” makes her argument suspect.
The C.R.A. was a Democratic program overseen by a Republican Administration. The intensity of the program was ramped up under Bush and extra vigilance was called for. We got the opposite. In an ultra-low interest rate environment regulators need to be alert. But, this was not a case of Republicans trying to prove that government programs don’t work. Bush and the rest saw themselves using market mechanisms to extend home ownership and improve minority communities. The guys really responsible are the investment bankers like Blankfein and Dimon who knew about asset quality and just did not give a shit as long as they were getting paid. To be trusted at the “commanding heights of the economy” we should demand ethics and judgement. If you look at median incomes by Congressional district you see Boehner and Blunt at the bottom while Waxman and Pelosi and Eshoo and Maloney top the lists. The C.R.A, allowed the poor Republican saps in Stockton and Rancho Cucamonga to feel like they had a part of the American dream. The Repubicans in California are S.O.L. because of the housing debacle. You only get the McCardle argument, however, from policy wonks in the DC suburbs. Out where real people live the Republicans would like to find a way to have programs that help their constituents while taking advantage of market efficiency and sound economics. That’s the tragedy in this. If you turn Wall Street loose on a program that has a humanitarian motivation, you get overkill on overdrive. The upshot for us was a deranged market where twenty-year-olds in Bangalore were calling every evening at dinner time to discuss my mortgage. We could have gotten into so much trouble. I kept thinking that it should not take a family with two graduate degrees to sort out household finance. I never really understood what crap was being offered to folks without our advantages who just wanted to think they were in the game.
Turb–Yeah, that was what convinced me McCardle is a hack. What’s interesting about McCardle is that no matter what position one takes on the likely Iraqi death toll, her position is incoherent. She favorably cites the NEJM study, which gave a violent death toll four times lower than Lancet2, but seems totally unaware that NEJM’s violent death toll for the first 18 months of the war is in agreement with Lancet1, which the critics (including McCardle) also claimed was much too high.
“There is something about MM that brings out misogynist bile on the left.”
I’m with Randy, misogyny has nothing to do with it.
McArdle induces a response in me something akin to fingernails on a blackboard because her blog posts frequently exhibit lazy, careless thinking, and also frequently exhibit a remarkably callous disregard for the folks whose lives would be effected by the positions she espouses.
The fact that she’s a woman enters into it not at all.
My apologies to publius for abusing McArdle on this thread against his express wishes.
Well, the more devastating attacks don’t.
But sloppy arguments should always get dismantled, with prejudice.
But she’s quite right that the policy goal of getting more people into home ownership involved more measures than the CRA and some of these explain why the housing bubble was looked on with favour in many quarters. The sin is as much of the right as the left.
I didn’t think the issue at hand was necessarily about the sins of the left or the right, but rather the question of government efforts such as the CRA vs. the unfettered free market.
Whether or not she is right about government measures above and beyond the CRA, she does not make that case, and she is clearly wrong about the impact of the CRA itself.
It’s really a sloppy bit of argumentation. Her conclusion is basically: whether or not the CRA has actually led to bad outcomes, it is proven to be a very bad idea by the bad outcomes that it likely didn’t cause.
I mean…huh?
“[T]he role of the CRA in the financial meltdown [has been] understated by liberals who are unwilling to admit that regulation, too, can produce hideous unintended consequences. . . . Regardless of how much causal blame you assign it, the financial crisis has certainly proven that the CRA seems to have been a very, very bad idea.”
MM is correct that “regulation … can produce hideous unintended consequences.” What that has to do with the CRA, however, is far from clear. And to try to link the two by stating “the financial crisis has certainly proven that the CRA seems to have been a very, very bad idea” is simply a dishonest argument that has been soundly and repeatedly rebutted. The timing is way off; non-CRA banks were the primary originators of sub-prime loans; and CRA loan performance simply hasn’t been worse, holding income levels constant, than non-CRA loan performance.
When you offer up regurgitated arguments that have been discredited months ago (I heard it first last October from some of my colleagues in finance and went through the timing problems then), however much one might want to be civil in response, there is a strong and quite natural tendency to denigrate the author, either for intellectual laziness or dishonesty.
One more point on timing. CRA-style loans, e.g. at places like Countrywide rather than banks subject to CRA, were first securitized in 2003. That the problems with these loans began shortly thereafter does not appear to be coincidental. The moral hazard problem with these loans was simply astounding. I would argue that the ability to make these loans and quickly get them off your books through securitization – without even the fig leaf of holding some – is a much more important contributor to the financial meltdown. Not entirely responsible by any means but an order of magnitude more important than the CRA. However, the McArdle’s and Carney’s conveniently overlook the potential for unregulated markets to have been the primary cause of the meltdown.
I’m a feminist. I don’t think that feminism means that women are immune to criticism. In fact, if one respects the intellect of women as much as the intellect of men, then arguments put forth by women should be just as much the target of debunking and dismantling as the arguments of men. IMHO the only way arguments against MM’s post could be considered mysogynist is if the attack took the form of linking her gender to the invalidity of her thesis. Just disagreeing with a women, even disagreeing rudely, is not inherently misogynist.
Rich S nails it: the problem was the securitization, and the lax regulations that let these institutions treat these types of liabilities as if they weren’t really liabilities on their books. Thus, they were able to leverage themselves in ways that they wouldn’t have otherwise, and shouldn’t have been allowed to do either way.
The devil, as it were, was in the lack of regulation and oversight by government. Not the excess thereof.
KenB,
I don’t think she was going for “split the difference,” though even if she were that would be silly, as SoV points out.
When you write, as MM does,
The CRA did not singlehandedly cause the meltdown
You are suggesting, as I read it, that CRA was a major cause, helped along by some other actors. That’s wrong.
The pressure to make bad loans did not come primarily from government. It came from the private sector. That’s the fundamental refutation of the “CRA made me do it” argument. In this case it really was the devil.
I’ve always seen the bad loans and foreclosures as more symptom than cause. Those loans would never have been made had there not been an entire superstructure eager to buy them, based on inadequate due diligence, overreliance on ratings agencies and complex financial structures, poor analysis, and probably willful blindness induced by short-term profits.
Without all that most of those loans wouldn’t have been made, and the damage done by those that were made and went into default would have been quite limited.
Well, as you(and hundreds of other people by now) have pointed out, she is simply wrong on the statistics. However . . . over the course of a year and a half, I’ve garnered the impression that she’s simply not very good at math. She acts very much like any number of students I’ve had who are unable to do the work, but they cross their fingers and hope they can fake their way to a C- passing grade. That’s not a slam, gender or partisan or otherwise; that’s an assessment of her numerical prowess.
I’m guessing the whole vouchers/CRA/Krugman is wrong, etc., is in part simply a phatic communication to call to people of like persuasions. That and what you gotta do to move up to the next rung on the employment ladder.
Nor has ‘the left’. I am by temperament basically a ‘conservative’, yet to Megan and others like her, I am – and will always be – a ‘liberal’. That’s for the sin of talking about cluster sampling, point estimators, confidence intervals, etc. I got the impression then that she was rather intimidated by engaging people who obviously knew way more than her about statistics, but that she felt that she couldn’t back down by that point.
My initial comment about the drop-off in quality refers to posts like this and this where she tries to imply some sort of nefarious pressure on Republican-contributing car dealers and deceptive and misleading practices on the part of Elizabeth Warren in a recent medical bankruptcy story. Even though a cursory check would show that there are actually far more Republican-contributing car dealers than Democratic ones, which accounts for the disparity in closings, and even though the information she accused Warren of not providing was discussed in some detail on page five of a six-page study(did she even read it before dashing off her rather vitrolic commentary?)
That’s the sort of decline I am talking about, where not even minimal expertise in basic arithmetic is in play, but simple standards of journalism most definitely are.
Being a woman should hardly make McArdle immune fromn criticism. The question isn’t criticism, but unhinged bile, references to who she’s sleeping with and claims that she shouldn’t be taken seriously. I disagree that that stuff is gender neutral.
Any policy hurts someone. Cap and trade, which I support, hurts people. No doubt we all try to understate such things, and appear callous to those with whom we disagree.
I don’t think we know enough about this crisis yet to make the confident statements people in this thread are making.
That may be true, but can you cite any comments here that fall into any of the categories you describe? If not, why bring it up?
Just to clarify my comment upthread:
I don’t hold careless, lazy thinking against people *in general*. Pretty much everyone has contributed one ill-considered rant or another to the mix at some point.
McArdle does this for a living. She gets paid to opine. And, she’s an intelligent person, it’s not like she’s your standard issue AM radio knothead.
She could easily do better, and ought to do so.
OK, but what explains the level of hostility she provokes? It is disproportionate.
IMHO, one of the biggest reasons for people to resent McArdle is what I call the ‘fresh vampire’ idea (think BtVS):
Many of the highly dishonest propagandists in the MSM are old white men. We can’t really emotionally connect with the idea that they were once honest, young idealistic reporters. To our eyes, they’ve always 100-year old corrupt mouthpieces, speaking an archaic dialect, hung up on 30-40-year old politics. They’re like Dracula – a vampire who is unspeakably old, speaking an archaic dialect, dressed in an archaic manner, and ignorant of current affairs and technology.
With Megan, we are actually seeing a **larval** Broder, or Hiatt or Krathammer. It’s like seeing a vampire which was an ordinary human being a few years ago. A vampire who speaks in modern English, and wears modern cloths, and understands modern tech.
With Megan, we’re seeing an ordinary person go into blogging, and then in to the ranks of the semi-pro media, and now into the ranks of the fully pro media (Atlantic article writer, The Economist, etc.). All the while being a blithe, dishonest voice of the elites, and dismisser of truth and consequences. Instead of reading about her writing something ridiculous 30 years ago (say, defending Nixon, or segregation, or dissing hippies), we see her taking current language.
For example, when she gets on her high horse about ‘political correctness’, we know that she was publicly chortling about how some NYC types might teach protesters some lessons with 2×4’s – in 2004, not 1969.
In terms of economics, we are now living through a crisis of doctrine; Megan is a prime supporter and propagandist of the Chicago School, who continues to support it, and to grasp at any dishonest straw to deny this crisis. That adds to things – for example, I imagine that neocons get far, far less respect now than in 2002.
Anybody who sees the corruption in the elite MSM is now seeing how that corruption is formed, and transmitted to the next generation. Just like being totally wrong didn’t lose any neocons their sinecures at AEI or their TV appearances, we know that Megan’s deliberate BS will not hinder her career – quite the opposite.
What are you talking about? She’s lazy and careless (sometimes)in her thinking and her postings. Sometimes, such as in the links I indicated, this rises to egregious levels. Where do you get that the responses to this are ‘disproportionate’?
“what explains the level of hostility she provokes?”
That she is widely perceived by now to be be a member of the hack-machine of movement conservatism talking-point dissemination?
Once i had an argument with her in her blog, in which I pointed out that paying taxes in the USA is entirely voluntary, as one can quit the country and citzenship if the deal offered is not regarded as advantageous, and there are no restrictions on leaving it; exactly the same argument that libertarians use against those who complain that wages are too low at Wal*mart. It is a freely entered bargain of mutual advantage.
She could not accept the argument because there is in effect an exist fee, which is entirely irrelevant to an argument about liberty and the voluntary aspect of the deal.
I get BTW the same “won’t hear it” reaction from most any other libertarians, which shows what their real agenda is.
«With Megan, we’re seeing an ordinary person go into blogging, and then in to the ranks of the semi-pro media, and now into the ranks of the fully pro media (Atlantic article writer, The Economist, etc.).»
While your argument is mostly reasonable, she started at the Economist, and after that became a blogger for Movement Republicanism.
She could have stayed — the Economist itself seems to have become a vehicle for Movement Republicanism (it even recently printed the usual argument that pay differentials between black and whites cannot be due to discrimination, because they would be arbitraged away by the market).
scentofviolets
Mcardle’s main squeeze just got a gig at the right wing Koch thinktank/whatever after being laid off. She did post this openly so it’s not like she’s concealing this from people.
camp
I know that the CRA required banks to make loans in ghetto areas, but Rancho Cucamonga? There are some ghetto areas in Stockton, at least.
When are other similarly intelligent libertarian commenters like Tyler Cowen and Will Wilkinson called “douchebags”
There’s never a call for the criticism of McArdle to assume a sexist tone. But I will say that the above comparison is blatantly unfair to Cowen and Wilkinson, the former an economics professor (not an MBA like McArdle), and the latter a promulgator of thoughtful and nuanced discussion of liberty (again, something McArdle is unlikely ever to be accused of).
OK, but what explains the level of hostility she provokes? It is disproportionate.
McArdle advocated for a pointless war that ended up killing a million plus human beings. That’s a pretty awful thing to do. But then she went out of her way to erase those dead Iraqis from history: to systematically discredit serious attempts at counting the dead. I don’t see how she’s any better than a Holocaust denier.
Do you have a problem with hostility towards Holocaust deniers?
“It’s a Megan McArdle post. Is there any substance to attack?”
We call this “ad hominemn.”
There is something about MM that brings out misogynist bile on the left.
It’s adorable how patronizing those on the right can be when one of their female number is critized, rushing forward to defend milady’s honor.
now_what simply makes provocative statements guaranteeded (sic) to infuriate people and get a lot of argument going
-Gary Farber
…
>> “It’s a Megan McArdle post. Is there any
>> substance to attack?”
We call this “ad hominemn (sic).”
-Gary Farber
Is ad hominemnmn always wrong? Or only when someone else does it?
Weren’t you saying about me precisely what other people in this thread are saying about a certain Ms. McArdle?
They are saying it is not worth engaging this person in any sort of debate, because this person is full of bullsh*t.
I mean that in the accepted technical meaning of bullsh*t.
Megan McArdle knows that the accusations she is posting about the CRA are completely false. She knows that we know that the accusations she is posting about the CRA are completely false. She is posting them to prove to certain people that she will lie for them. She is doing this because she wants money. The people she is trying to impress know that the accusations are completely false, and she knows that the people that she is trying to impress know that her accusations are completely false.
It’s bullsh*t.
Publius, why do you sully the Obsidian Wings brand by furthering the spread of bullsh*t?
Don’t we have enough of it in our lives already?
There’s no contradiction between “Megan McCardle regularly advocates morally awful positions for factually bogus reasons, and vice versa” and “McCardle is routinely abused and dumped on in language that has no counterpart in the abuse given to male conservatives, and those whose sex isn’t known.” She is given extra sexist clap-trap, just as Ann Coulter is–notice that we don’t see anyone to speak of accusing prominent male talk show hosts and commentators of being transsexual. It’s only the assertive, aggressive woman who gets that. Likewise, it’s not the routinely, impresively, howlingly wrong and appalling male writers who get told they should go back to the kitchen, or that their failures demonstrate why men shouldn’t pursue higher education, or that they’re just there to pad out an editorial roster with more testosterone and bigger testicles, or whatever.
what explains the level of hostility she provokes?
In my case it is a belief that she has sometimes been quite careless, and even dishonest, in her posts, and responded poorly to criticism. Also, of course, there’s the hackery and implicit, and I think unjustified, claims of various sorts of expertise owing to her Chicago MBA.
Along that line, McArdle’s writing sometimes strikes me as having a “talking down” tone. I do not like being talked down to, especially by people who are not particularly expert in what they are talking about.
Yes, but it helps to link to or point out the latter. That way, the subject then becomes the critic who posts sexist claptrap, instead of McCardle.
Otherwise, blurring the line between the two gives cover to McCardle’s faulty rhetoric, and then becomes, itself, sexist.
wkwillis: I guess I was just conflating the CRA with the entire “mortgage fraud industry” where the Inland Empire is ground zero. The vast eastward sprawl of Los Angeles sort of runs together; Riverside would probably have been the better short-hand.
MM may be intellectually lazy. It’s fair to point out, however, that the UofC crowd is having to adjust to a challenge to what they had considered settled dogma, namely markets always self-correcting. Posner to his credit posits a market failure. MM is still trying to hang onto the model. But no one forced any CEO to lower lending standards.
The question isn’t criticism, but unhinged bile, references to who she’s sleeping with
I didn’t see that here. But I’m sure it’s here, otherwise, pithlord wouldn’t have brought it up in her defense. Could you link to it on this thread so that I can see what I had missed? Thanks.
There’s no contradiction between “Megan McCardle regularly advocates morally awful positions for factually bogus reasons, and vice versa” and “McCardle is routinely abused and dumped on in language that has no counterpart in the abuse given to male conservatives, and those whose sex isn’t known.”
Not calling you or anyone else here out, the problem is that when some on the right side are completely dismissive of liberals pointing this precise phenomenon out for minorities and women, and then use this argument, it is going to generate more heat because hypocrisy=friction.
Eric, I think Pithlord is referring to wkwillis at 03:56 PM. However, it seems to be in relation to a comment that scentofviolets made, but I don’t see any relation. Besides, it is not picked up by anyone else (I had to scroll back to find it myself) Pithlord, I think it is important to distinguish between regulars and people who drop comments in.
“Regardless of how much causal blame you assign it, the financial crisis has certainly proven that the CRA seems to have been a very, very bad idea. “
This statement follows a paragraph laying out all the ways in which the CRA causally contributed to the financial crisis.
So, as Eric points out upthread, the argument here is:
The CRA at least partially caused the financial crisis. And even if it didn’t, the financial crisis proves that the CRA was a bad idea.
That is a crappy argument. It’s crappy, and it takes no deep subtlety of intellect to understand why. It’s so crappy that it’s hard to see it as an argument in good faith, at least from someone who in other contexts demonstrates a capacity for more than average thoughtfulness.
She’s a capable people who should easily be able to rise above the level of cant, but can’t or won’t exert herself to do so.
She could make a good contribution to the discourse. She settles for unhelpful, misleading, poorly reasoned and argued folly.
And, in terms of how it plays out in the real world, it’s materially harmful.
That’s why I, personally, don’t care for McArdle.
I don’t care who she’s sleeping with, what she eats for breakfast, how tall she is, or whether she rides her bike to work. I wish her well. But I think her blog writing is harmfully poor.
Let’s pretend that there is, in fact, a boatload of sexist claptrap (beyond the term ‘douchebag’, which is in fact routinely directed toward males) directed at McArdle. Is this in any way different in quantity or substance from that directed at her liberal female counterparts?
That’s not, by the way, an argument that two rights make a wrong. It’s an observation that when “sexism” is a kneejerk defense of one’s political allies, it’s little more than a perceived Power Word: Liberal, uttered in the hopes that the critic will curl up into a fearful, defensive little ball and end all substantive response.
Just to be clear, nothing in this thread tripped my sexism alarm. I was reflecting on past theads about McCardle.
Russell, that’s precisely the criticism I make, yes. She could be a constructive force in the world, and chooses thoughts and presentation that make her contribution wasteful and destructive instead.
Mythago, I’m opposed to gratuitous sexism for pretty much the same reasons I’m opposed to bullying and torture: they’re all wrong, and we are better off without them. There are also slippery slopes–the leadership of the Democratic Party has failed utterly when it comes to the “well, they’re doing it so we should go along” test, and we need not to join them iceskating into the abyss.
“What’s the best we can be?” is a much more interesting question than “How much bad stuff can we get away without entirely becoming monsters ourselves?”
I guess one reason MM continues to garner attention is the wide gap between potential, based on occasional insights and the drivel she other times serves up.
MM two days ago: “The CRA did not singlehandedly cause the meltdown. But the relaxation of credit standards that allowed the meltdown did start, as far as I can tell, with the CRA.”
MM 8 months ago: “Moreover, it is meaningless, in a mixed economy like ours, to attribute a massive failure like this to either “the market” or “government regulation”. The people who think that this can all be traced back to the CRA are wrong.”
I won’t attribute any particular motivation to Ms. McArdle regarding her change in views. It should be enough to point out flaws and inconsistencies in her reasoning. Name calling really doesn’t convince anyone who doesn’t already agree with you, and turns some of these potential allies off. Not to mention it sidetracks the discussion away from ideas.
Ceri, I’d like to think we’re all opposed to sexism, gratutious or not. But it’s tiresome to see the same people who think sexism exists only in the minds of radical feminists turn around and try to club liberals by screaming “Sexists!” when anyone looks at their girl funny.
Megan McArdle needs to be beaten with 2×4’s by a mob of hardhats for her opinions.
And there’s nothing indecent or objectionable about my saying so — at least, nothing so objectionable as to get someone fired from the Atlantic.
I should say I was judt reacting to publius’ first comment. I wasn’t accusinf anyone here of sexism. “Douchebag” is juvenile, not sexist.
There is some illustration here of the disproportionate fury Ms. McArdle tends to inspire, but I wouldn’t say anyone has been sexist.
McArdle doesn’t need any defending from me. She puts up with a sewer of a comments section that most pundits, male or female, would have closed down along time ago. Sexism in the blogosphere is a real problem, and I’ve seen little evidence the progressive side is better.
Naranjo, I don’t think there is any evidence that she changed her views. She still doesn’t think the CRA was a major factor, and still thinks that the government meddling in multiple ways to prop up home ownership was. This manifested itself in a sort of trajectory of which the CRA was more of an early symptom rather than a prime cause.
Other areas involved are tax deductions for home ownership (this is the biggest one, and is still ongoing), securitization of loans in response to the S&L crisis (done so that local downturns in housing markets wouldn’t kill local banks), FannieMae relaxing its standards at the end of the bubble (causing problems for itself, and incentivizing the marginal players to go even further), low interest rates kept down to avoid a recession caused by the DotCom bubble bursting (even Krugman liked that idea, but it helped the housing boom quite a bit), leveraging rules which in retrospect seem silly, a change in mark-to-market accounting right at the time when it would hurt most and force a fire sale of assets into the recession (this was pushed by many private actors and wasn’t purely a government thing), and probably hundreds of other things too.
It is a huge storm of public and private incentives swirling together to create a mess.
The key substance in Megan’s post is:
As far as I can tell, that is 100% accurate. If you don’t think so, tell me which part you don’t believe is accurate.
And the government is STILL meddling to prop up home ownership, in ways which are almost certain to backfire. That tax credit for first time home buyers? It has to be repaid.
You realize what that means? It’s just a way to allow first time home buyers to get deeper into debt. When you’re qualified for a loan, it’s on the basis of how much they figure you can afford to borrow. And here the government is, taking that person who’s just borrowed all they can afford, and extending them a loan.
If they didn’t require you to repay it, (Tax credits don’t normally have to be repaid.) it wouldn’t be so dangerous. But it’s been structured in a way almost guaranteed to blow up in the next decade.
Sigh. Sebastian, what evidence do you have for this assertion? Contrariwise, what sort of evidence would anyone have to present to get you to change your mind.
This sort of thinking can be best characterized as ‘sloppy’, and really doesn’t serve as anything but a partisan rallying point.
You should show this rather than tell us about it. I don’t see that Megan gets anything but what she deserves on her thread, that is, if she is pranged, it’s for her absurdities and factually incorrect statements. I don’t see too many personally derogatory comments, or rather, nothing out of the ordinary. If you think otherwise, show us what you’ve got.
“If you don’t think so, tell me which part you don’t believe is accurate.”
What’s the “mentality behind the CRA”?
How are the political and social motivations the make up that “mentality” reflected in all of the policy that has been made in the intervening 25 years?
Specifically, how did the “mentality behind the CRA”, however you want to characterize it, make regulators unwilling to intervene in the very many other factors that led to the most recent banking crisis?
And how does the most recent financial crisis demonstrate that the CRA, specifically, as originally conceived and implemented, was a very, very bad idea (italics McArdle’s)?
Can you, or McArdle, or anyone, show me the language in the CRA as originally passed that loosened credit requirements for borrowers? Or that required that mortgages be securitized and resold? Or that forced mortgage brokers to write absolutely unsupportable loans so that they could immediately sell them on for an immediate and risk-free profit?
The CRA stated that banks should not refuse to lend in certain neighborhoods, and should endeavor to make credit available to lower income folks, in a manner consistent with sound banking practice. The “penalty” for not doing so was that regulators might look unfavorably on requests to expand their business through merger, acquisition, or branching.
That’s it.
The reason this law was passed was because, at the time, it was extremely common practice for banks to refuse to lend money to black or other minority people, or to anyone seeking to purchase or develop real estate in urban minority neighborhoods.
Black skin, no loan. Black neighborhood, no loan.
Was the market addressing that problem? No, it was not.
McArdle wants to argue that all government involvement in the economy is of a piece, because it’s all motivated by the same “mentality”, whatever the f**k that is.
McArdle is philosophically hostile to public intervention in the market, so any public intervention in the market is a priori bad, and any problems that emerge in the market are most likely caused by whatever public intervention is handy.
Cherchez l’etat.
Do I overstate? Show me the part where I’ve done so.
“Sebastian, what evidence do you have for this assertion? Contrariwise, what sort of evidence would anyone have to present to get you to change your mind.”
Which assertion are you talking about? I don’t feel any special need to lay out a long case for boring things that everyone agrees on. If you don’t believe one part tell me which one you don’t believe. I’m not particularly interested in defending for example the proposition that tax deductions for house ownership increase house ownership if no one in their right mind disagrees.
And if you don’t think that tax deductions for house ownership work that way, it would be good for other readers to realize that about the depth of your understanding on the issue.
Sexism in the blogosphere is a real problem
Indeed, it is. But you seem only concerned about that problem when you think you can use it as something to whack progressives; the accusation of sexism, followed by a coy ‘you’re not really sexists but you’re disproportionately angry, wink wink’, is a dead giveaway. Turn up the Rhetorical Cloaking Device a couple of notches next time.
By the way, if you think that McArdle is a unique, special snowflake in terms of the misogynist bile she receives, you’re either deluded or a liar. Go ask Amanda Marcotte or Pam Spaulding or hell, Mighty Ponygirl, who blogs about video games for cryingoutloud, about sexism on the internet.
If, that is, your white charger isn’t in need of oats and a rubdown after all the dashing to and fro defending Ms. McArdle.
Sexism in the blogosphere is a real problem, and I’ve seen little evidence the progressive side is better.
Ack. It is a problem on the left and the right. The left should get no pass for there are lapses everywhere (women, as it were, are the n***ers of the world). But there is most certainly a substantial difference. The progressive side, for one, champions women’s issues and seeks to root out sexism and other forms of bigotry – this is done even by those not necessarily deemed feminist in a reductionist kind of way (thinking Scott Lemiuex, Jim Henley, Ezra Klein, etc).
That sexism sometimes rears its head on the left is certainly the case. But when it does, that sexism is generally cited and exposed by other voices on the left. Consider, for example, the recent reaction to the Playboy “Conservative women I’d like to hate f**k” article.
It was roundly criticized by each and every one of the left-leaning websites that I came across (that is, those that mentioned the story did so in this way).
The conservative reaction? A few blogs put up pictures of “ugly” liberal woman and claimed that the reason conservatives don’t have those inclinations is because of the unattractiveness of liberal women.
Further, very few right leaning bloggers defend the likes of Amanda Marcotte or Pam Spaulding when they are subject to rank sexism. Very few criticize each other’s conduct in such a way. On the contrary, charges of “sexism” are largely treated like the unserious complaints of “permanent victims”
“What’s the “mentality behind the CRA”?
How are the political and social motivations the make up that “mentality” reflected in all of the policy that has been made in the intervening 25 years?”
At various levels of analysis the mentality behind the CRA shows up in different ways. And please note that it is the mentality ‘behind’ the CRA that we are talking about, not that the CRA came up with something new that then corrupted government thinking from then on.
On one level of abstraction the mentality behind it is noticing the relatively innocuous fact that lots of good things seem to surround home ownership. Home owners tend on average to have more steady work, they tend to invest more deeply in their community, they tend to be wealthier they tend have more stability in lots of important areas. Whether this is caused by home ownership or whether home ownership is a reflection of these things isn’t well understood. (And of course it could be both).
In any case, the US government seems to operate under the assumption that the market is not doing a good job of providing for home ownership needs, so it attempts to change the market rules in such a way as to encourage home ownership through various means. The initial CRA attempted to attack redlining—the process of denying or restricting loans to certain neighborhoods sometimes by race. The problem is that the legislation was very unclear on what wasn’t permitted and how one would make the decisions. As such there is now a relatively cryptic and fairly non-transparent administrative process surrounding the whole thing. The legislative changes in 1989 were somewhat less focused on strict redlining and much more focused on pointing out disparities which were to be reconciled. This represented somewhat of a drift from racial discrimination into general home ownership promotion, especially as the implementation actually played out (threatened lawsuits under the act based on statistical disparity by race even though there were credit explanations). In 1992 there were legislative changes to Fannie Mae requiring a greater focus on providing for increased home ownership. In 1995 the Clinton administration complained that banks were to process oriented with respect to the CRA and that they should be more focused on making sure that minority buyers actually purchased homes. This led to another round of administrative tinkering with the practical effect that the anti-discrimination focus faded into the background while home ownership boosting came to the fore. (This was a bipartisan effort, so please don’t think I’m blaming Democrats in this case).
The mentality behind how the CRA functioned was that home ownership was something good in itself. The government took many steps (the largest being the tax deduction) to make home ownership much more likely. The CRA, especially as played out after 1989 and even more so with the refocus in 1995, played that out. “It will make home ownership harder” was considered a valid objection to regulatory changes pretty much all the way until the actual collapse (and even now though less so). This (the mindset, not just the CRA itself) ended up changing how loans were made, who would qualify for them, and how closely the government would look at them. Democrats thought it would help the poor, Republicans thought it would help businesses, both pretty much went along without questioning. So long as more people were getting home ownership, we thought everything was peachy.
I’ve never been thrilled by this form of the argument. I think it is pretty much a given that partisans (which is to say human beings) notice a vice more easily in those not on our own side. So when a partisan of the other side points out a problem in your own that you weren’t noticing or attending to, that isn’t really surprising. At the point, you can decide that they do or do not have a valid point, but noticing that they are more likely to notice the problem in an opposing side seems like a deflection. (A normal human deflection to be sure!)
“The mentality behind how the CRA functioned was that home ownership was something good in itself.”
This strikes me as an excellent and to-the-point response. Thanks for your thoughtful and thorough comment.
I’d like to make a couple of points in reply.
First, it strikes me that the role of the CRA in all of this is something akin to a thorn that someone stepped on, which caused a wound, which then got infected, which was left untreated, which eventually turned gangrenous, and which led to that person’s leg being amputated.
If only they hadn’t stepped on that thorn!
The point that the political and/or social objective of encouraging home ownership distorted public policy in harmful ways is reasonable.
To argue that the desire to encourage home ownership through public policy — the ‘mentality’ — is anything like a sufficient causal explanation our current financial problems, however, seems me an argument in bad faith. You have to willfully ignore too many other factors.
The mentality behind how the CRA functioned was that home ownership was something good in itself.
This leaves the impression that home ownership as a good is a recent thing. I think a better place to start in with the 1968 Kerner Commision report and the Housing and Urban Development act. This underlines the point that russell makes above about how the argument isn’t really one made in good faith.
At the point, you can decide that they do or do not have a valid point, but noticing that they are more likely to notice the problem in an opposing side seems like a deflection.
The problem isn’t that “they” (in this specific case) are more likely to notice the problem when it occurs on “our” side. It’s that “they” deny that such a problem is even conceivable or possible until it can be used as a tool against “us.”
“…we know that she was publicly chortling about how some NYC types might teach protesters some lessons with 2×4’s – in 2004, not 1969.”
This is wrong. The post in question was in February of 2003, and she subsquently said it was “frankly, a pretty stupid thing to write,” and apologized for it. Are people ever going to let it go? Because I think it’s past time. Try criticizing her for stuff said in the actual past four years, not stuff six-plus years ago, and then misstating the facts as to when the statement, since apologized for, was made.
There’s something unseemly about constantly bringing up one long-ago, apologized-for, statement. Has everyone who does this never said a single stupid thing they’ve long apologized for? It’s not like there isn’t plenty of recent stuff to perfectly legitimately disagree with her about. Fair game and go for that.
“This leaves the impression that home ownership as a good is a recent thing. I think a better place to start in with the 1968 Kerner Commision report and the Housing and Urban Development act.”
You could start with the reasoning behind extending the franchise only to property owners in the founding era, for that matter.
The real problem here isn’t ecouraging home ownership. It’s making it easier to buy a home, without making it easier to afford a home. The mortgage interest deduction at least did the latter, a lot of the changes in lending standards of a few years ago only did the former.
Uh-huh. Mind dialling down the hostility a bit? I am referring to the post of yours immediately preceding mine where you say that:
I ask again: What evidence do you have for this statement, and contrariwise, what evidence would people have to present that would convince you otherwise?
As far as I can tell, a) you don’t have any evidence, and b) there is no evidence that anyone could present to you that would change your mind; in fact, you probably couldn’t tell us just what it would have to be.
It would also be nice if you had some, you know, evidence of the ‘disproportionate fury’ that is being brought down on Megan’s head, because I’ve never seen anything like you’ve described.
You aren’t philosophically opposed to evidence are you, Sebastion? Or the scientific method? If not, then so far, you’ve been doing a horrible job of presenting your case.
“I don’t see too many personally derogatory comments, or rather, nothing out of the ordinary. If you think otherwise, show us what you’ve got.”
June 29, 2009 at 06:27 AM: “Megan McArdle needs to be beaten with 2×4’s by a mob of hardhats for her opinions.”
I suggest that this is not the most substantive of critiques.
Btw, both Russell and Mythago(I’m assuming “Mythago Wood”) make the same points I do, but both more eloquently and more detailed.
It looks to me like Sebastian doesn’t have a theory per se, what he has is a narrative.
Whether there is an honest confusion on Sebastian’s part on the difference between the two is perhaps for someone who knows Sebastian a bit better than I do to answer. I will note that this seems to be a common conservative failing, this inability to distinguish between a scientific theory and a just-so story that’s presented to ‘explain’ the facts on the ground.
Or, in an attempt to fold it into russell’s 2:11 PM thorn analogy:
All the misfortune that befell you because of a thorn doesn’t suddenly make the CRA the only rosebush.
Indeed. I agree with Mr. Bellmore that it was increased laxity in lending standards that led to the latter circumstance, which the CRA does not speak to, since it only required that minority applicants not be denied if they met comparable standards as applied to other borrowers.
(Of course, the mortage interest deduction doesn’t necessarily help with affordability either, unless your income and mortgage interest payments are large enough. It’s a deduction, not a refundable credit. In which case, what does affordability even mean?)
Uh-huh, this is entirely personal, and has nothing to do with a rather infamous statement she made, indeed, can’t be read as a commentary on that incident at all.
Gary? Peddle it elsewhere. Anything else?
The second part follows from the first, the ‘out of the ordinary’ bit you know. If you think that Megan has been singled out for some sort of special treatment in this regard, you haven’t been reading a lot of female-authored blogs, as Mythago has already commented.
“There’s something unseemly about constantly bringing up one long-ago, apologized-for, statement.”
Speaking as someone who has suggested, in writing, public beatings for certain banking executives, I see your point. Especially considering it was something she wrote on her own blog, before being hired by the Atlantic.
That said, there are things that don’t really go away. You can do other things to make up for them, but you can’t make folks forget them.
It was a really stupid thing for her to write. And, for the record, not the last such thing.
Pot, meet kettle.
“I ask again: What evidence do you have for this statement, and contrariwise, what evidence would people have to present that would convince you otherwise?”
Which statement do you need evidence for? Which statement do you have trouble believing? I’m not interested in trying to go over all of them, especially not the obvious ones, unless you have a specific objection that requires attention. Which so far, you don’t.
State your objection and I will try to deal with it. Right now you are in ‘cite please’ mode, which I just find irritating and non productive. I’m perfectly capable of answering actual questions, see my response to russell.
“It would also be nice if you had some, you know, evidence of the ‘disproportionate fury’ that is being brought down on Megan’s head, because I’ve never seen anything like you’ve described.”
I presume you aren’t talking to me, since I didn’t write that.
“You aren’t philosophically opposed to evidence are you, Sebastion? Or the scientific method?”
No, I’m all for responding to material questions about a hypothesis. Please feel free to ask one. Thanks.
“Gary? Peddle it elsewhere.”
I am unaware that you are in a position to give me orders.
And you don’t see “needs to be beaten with 2×4’s” as a “personally derogatory comment.” Noted.
I suggest rereading the Posting Rules, if that’s your idea of being “reasonably civil” and not “abus[ing] or vilify[ing] other posters.”
Alternatively, why bother ever making a substantive criticism of McArdle? Just recite “two-by-four, two-by-four, two-by-four, two-by-four, two-by-four, two-by-four,” if that’s your idea of productive discussion.
And since the entire basis of bringing that long-ago comment up is that, you know, advocating violence is bad, let’s not be in the least hypocritical by advocating it in turn.
And, of course, if you ever say anything that you later write was “a pretty stupid thing to write” and that you apologize for it, let’s never, ever, ever, cease to bring it up every single time you ever say anything ever again.
Because that’s the way to engage in substantive and interesting discussion.
And there’d be nothing personal about it at all.
“since it only required that minority applicants not be denied if they met comparable standards as applied to other borrowers.”
Not entirely true, since enforcement has involved that same shift from disparate treatment, to disparate outcomes, that we saw on display in the Ricci case. Nominally, you have to treat similarly situated miniorities and majorities the same. As a practical matter, however, you have to make sure you don’t get disparate outcomes, and achieving that actually requires NOT treating similarly situated minorities and majorities the same, because they’re not similarly situated in the same proportions.
If I’ve been hostile, I’d like to know where. Could you cite the comments of mine that lead you to believe that?
The comment that I quoted, for one. For me, most of your comments come off as hostile, while Sebastian seems mostly the opposite of hostile. It struck me as ironic that you were accusing Sebastian, one of the more mild-mannered of commenters, as being hostile.
Otherwise, see just about every comment you’ve directed to von.
“If I’ve been hostile, I’d like to know where. Could you cite the comments of mine that lead you to believe that?”
Your 03:23 PM seemed to me to be hostile.
Okay, let’s try:
AXIOM: The Community Reinvestment Act established that lenders would suffer consequences for basing lending decisions purely on race and/or neighborhood, rather than creditworthiness.
HYPOTHESIS: The “mentality” of this legislation then led to borrowers not covered by the CRA, doing business with unregulated lenders not covered by the CRA, in neighborhoods where the CRA didn’t apply, in a time period when enforcement of the CRA was loosened, to become the primary drivers of a real estate bubble that catastrophically blew up due to derivative instruments which had nothing whatsoever with the CRA.
Now, could you provide detailed support for the hypothesis in question?
Could you clarify if you’re asserting that comparatively few people thought that homeownership was part of the American dream until 1977?
Can you also sketch out how the failure to pass the CRA might have helped prevent the bubble and the CDS meltdown?
And yet, not even Holsclaw or McArdle are currently arguing that actual CRA mortgages were responsible for the meltdown, having if anything a lower default rate. So apparently, your unsupported assertion about unqualified minorities hasn’t actually led to a disproportionate outbreak of CRA defaults. Odd, that.
Brett Bellmore wrote: “Not entirely true, since enforcement has involved that same shift from disparate treatment, to disparate outcomes, that we saw on display in the Ricci case.”
Except CRA enforcement was lax under Bush.
“Now, could you provide detailed support for the hypothesis in question?”
Except I already dealt with my actual hypothesis in the comment to russell. So have much interest in going over it again unless you have specific and pertinent questions.
“And yet, not even Holsclaw or McArdle are currently arguing that actual CRA mortgages were responsible for the meltdown.”
Now this is a specific question I can address. It was the mindset “increased house ownership=good failure to increase house ownership=bad” that led to the relaxed regulatory structure. See Barney Frank’s public statements on Fannie Mae in the early 2000s for example.
“…having if anything a lower default rate.” How do you figure that? My understanding is that “CRA loans” don’t exist as a separate thing. The CRA is about comparing whether or not you are giving loans in different neighborhoods, not a specific loan classification. One of the major ways of getting your CRA numbers up was giving sub-prime loans. Unless I’m totally missing what you are trying to say.
One change in mortgage lending that spans the decades is the movement from discretion to rules. At one time, the bank manager who issued a mortgage was expected to size up the creditworthiness of the applicant based on tacit knowledge. Those days are over, and even the crisis is unlikely to bring them back.
There were business reasons for this transition, but it is also true that the more discretionary system was difficult to defend under the CRA. Indeed, it was genuinely discriminatory because a white bank manager is far more likely to give the benefit of the doubt to a white person.
However, the tacit knowledge also contained genuine inarticulable information about default risk.
McArdle’s story is that further measures were taken by the USG to fudge things to increase homeownership among those who couldn’t afford it.
On balance, I suspect that replacing frontline discretion with formulae based on applications was inevitable anyway, and did more good than harm. But we don’t really know enough about what happened to make really confident statements.
I have no interest in documenting the fact that MM draws disproportionate ire or that her sex life is subject to more online discussion than a comparable male pundit. I agree that those on the right are more likely to see sexist tropes when they are employed against women on their side. I’m not aware of anyone, including ultra-traditionalists like Larison, who dispute the existence of sexism.
As far as I can tell, that is 100% accurate. If you don’t think so, tell me which part you don’t believe is accurate.
I think mds’ 4:26 statement of the “CRA hypothesis” covers the ground quite well.
What is inaccurate is the notion that the process McArdle describes was a significant cause of the meltdown. It was not. The vast majority of bad loans that were made were made because there was a demand for them, not because there was government pressure. The demand came from buyers convinced by their models and the incompetence of the ratings agencies and the statistical hand-waving of structured finance gurus that bad loans were safe, or safer than they seemed, anyway.
The financial markets miscalculated catastrophically. The rest is commentary.
I also think a huge part of the problem was that in the attempt to diversify risk in light of the S&L debacle (where local downturns ended up killing local S&Ls) we got an extreme division between the people taking the risk (ultimately holding the note) and the people making the initial risk analysis. This happened as a sort of public/private partnership in abdication of responsibility.
Would you please quite ducking, Sebastian? I find it hard to believe that when I bold something to reply to you, you don’t see it as a reply:
And in fact, I bolded the same material as you did in your post. And you really didn’t get what I was questioning? Really? Why would you think I bolded that part then? Please answer.
Going back to my initial questions:
So far, you’ve done a remarkably poor job of defending your statement, that -let me repeat it again so you can’t duck and pretend that you aren’t -“perhaps more importantly, the CRA, and the mentality behind the CRA, made regulators extremely unwilling to intervene.”. You’ve asserted it as a narrative, nothing more. Now how about that evidence, the scientific method, etc?
On balance, I suspect that replacing frontline discretion with formulae based on applications was inevitable anyway, and did more good than harm. But we don’t really know enough about what happened to make really confident statements.
We know that banks consistently made bad business decisions using discretion based lending and that those decisions hurt profits. I mean, every time a bank officer failed to give a loan to a creditworthy person who wasn’t the right color, the bank gave up profit. Every time a bank officer gave a loan to one of their white buddies when their credit worthiness didn’t warrant it, the bank took excess risk without appropriate compensation.
It seems absurd to argue that discretion based systems can produce better (or even comparable) risk assessments given cognitive science research from the last few decades. People are biased. They have great difficulty making risk assessments without their biases interfering. These problems cannot be substantially ameliorated by training and education.
What standard of evidence are blog commenters supposed to meet? Should they produce affidavits from federal regulators? Write an econometrics dissertation? Even those levels of evidence could be challenged, of course.
To my mind, coming up with plausible narratives is part of the “scientific” process. Maybe we can improve the level of rigour, maybe we can’t. It’s not as though we have a scientific answer to what caused the French Revolution or World War I.
Sebastian wrote: “And please note that it is the mentality ‘behind’ the CRA that we are talking about, not that the CRA came up with something new that then corrupted government thinking from then on.”
I’m sorry, Sebastian, but that’s awfully vague. I can assure you that massive capital inflows from China and other countries, eager for investment, were far more concretely influential than some diaphanous, mythical “mentality behind CRA”.
Are you sure it wasn’t CRA gnomes gumming up the mortgage broker computer systems?
Standards dropped NOT because of CRA, but because serving only high-quality borrowers would not produce enough volume and fee income.
It was *all* about volume and fees. They didn’t care about CRA, they were just looking for mass quantities of suckers.
I think you’re right, Turbulence, but cognitive science doesn’t point all in one direction. Sometimes it shows that people can make the right call based on experience without being able to articulate why.
Maybe the problem can be restated: the models are better than individual discretion (although also more susceptible to fraud and gaming), but if everyone uses the same model, when they fail, it’s spectacular. The results of many acts of individual discretion is less spectacular.
This is just a narrative. I can’t prove it, and don’t necessarily believe it.
Sebastian wrote: “The CRA is about comparing whether or not you are giving loans in different neighborhoods, not a specific loan classification. One of the major ways of getting your CRA numbers up was giving sub-prime loans.”
1. The vast majority of subprime loans were not from companies that needed to worry about CRA.
2. Subprime loans were used because they were cheap, and thus marketable, and helped to drive volume and thus fee income. And mortgage brokers got more money for subprime loans. People were sold subprime loans even though they qualified for prime loans, because the broker wanted the additional fee income.
You can’t just assume subprime = poor person.
Seb wrote: “I also think a huge part of the problem was that in the attempt to diversify risk in light of the S&L debacle (where local downturns ended up killing local S&Ls) we got an extreme division between the people taking the risk (ultimately holding the note) and the people making the initial risk analysis.”
What you’re talking about here is the rise of mortgage brokers, who bore no risk after 6-12 months no matter what happened to the loan. They worked for fees, and only had to find borrowers who could handle the payments for a little while. And, of course, if things went bad they’d just file for bankruptcy.
These outfits, hundreds of whom went bust in the housing crash, were not covered by CRA.
Pithlord wrote: “Maybe the problem can be restated: the models are better than individual discretion (although also more susceptible to fraud and gaming), but if everyone uses the same model, when they fail, it’s spectacular.”
Part of the problem was over-reliance on FICO. It was used as a proxy for ability to pay, when it’s nothing of the sort.
“Would you please quite ducking, Sebastian? I find it hard to believe that when I bold something to reply to you, you don’t see it as a reply:
And perhaps more importantly, the CRA, and the mentality behind the CRA, made regulators extremely unwilling to intervene.
And in fact, I bolded the same material as you did in your post. And you really didn’t get what I was questioning? Really? Why would you think I bolded that part then? Please answer.”
Ah, a direct question that I haven’t answered. Umm, since I bolded it in the section you quoted, I didn’t think that you bolded it separately. Can you see how that might happen?
And again, I answered it in my response to russell. But to be shorter: regulators tend to regulate with a goal in mind. We tend to get irritated with regulators who get caught up so much that they lose sight of the goal. The goal was to get more people into owning more houses. As such regulations which tended to stop people from getting into houses tended not to get pushed, while ones which tended to get people into houses were pushed.
Pretty much all of the regulations starting with the first amendment to the CRA and in lots of areas outside the CRA were designed with or implemented in such a way as to keep the idea of getting more people into more houses.
Surely you aren’t going to argue that housing sales were regulated in such a way that they were over-limiting?
“These outfits, hundreds of whom went bust in the housing crash, were not covered by CRA.”
Which has almost no bearing on my argument whatsoever. It wasn’t just the CRA, it was the entire regulatory environment, of which the CRA is a part.
The entire regulatory environment was focused much more on getting people into houses, rather than making sure that the loans were financially wise/safe for the economy.
Sebastian,
Are you suggesting that, in the absence of the CRA, companies like Countrywide would have looked at the vast sums of return-seeking money waiting to be invested in MBS and CDO and turned all that money away simply for lack of quality borrowers?
Sebastian,
I think if you are making a general claim that the American emphasis on the desirability of home ownership contributed to a bubble and an over-extension of credit that helped create the mess then I think you have a reasonable point, though I don’t think that was as important as you seem to. There was no inherent reason the damage needed to be as bad as it was.
My reading of McArdle is that she is saying something much stronger, along the line of mds’ comment, and I think she is trying to pin way too much blame on government.
You can’t talk about banks without talking about their regulatory environment. It is a chicken-egg thing, in the long run both are important.
I am suggesting that in the absence of an enormous focus on getting people into houses, including huge government financial incentives, that the regulatory environment would have been vastly different.
Sebastian wrote:
“It wasn’t just the CRA, it was the entire regulatory environment, of which the CRA is a part.”
Would you please demonstrate how these virtually UNregulated mortgage brokers were driven by the regulatory environment, rather than sheer profit-seeking greed?
These outfits were churning out billions and billions of dollars of bad subprime loans. Not because of regulation. Not because of CRA. They were doing it to make an easy buck.
“The entire regulatory environment was focused much more on getting people into houses, rather than making sure that the loans were financially wise/safe for the economy.”
And the housing industry was focused on making money by selling MBS to serve the vast quantity of money flowing into the market.
I’m sorry, but profit is a far more concrete motive than your vague regulatory handwaving. Your model of the mortgage industry operating in cringing servitude to Barney Frank simply doesn’t match what was seen in reality.
The “bad loans” respoonsible for the meltdown were the loans made to Wall Street whiz kids by greedy investors who wanted high returns with low risk, and were stupid enough to believe that the Masters of the Universe could “engineer” such outcomes.
Mortgage-backed securities were loans to highly-leveraged deadbeats on Wall Street, who were … optimistic … about how much debt they could support. Even if the CRA had positively required non-bank mortgage outfits to issue mortgages to unemployed black people, it would have been irrelevant to the fact that Wall Street sold bond investors a Big Shitpile.
The “mentality behind” lending money to Wall Street was not some altruistic belief in the goodness of wide-spread home-ownership. It was stupidity and greed in equal measure. Whether the bond investors were greedy and the bankers stupid, or vice-versa, is the main question. Neither the CRA nor what Megan has to say about it matters much.
–TP
Sebastian wrote: “You can’t talk about banks without talking about their regulatory environment.”
Mortgage brokers were barely regulated at all. And nor were their customers on wall street.
Your scenario simply isn’t compatible with reality, Seb.
If I understand you correctly, then, the statement that the mentality behind the CRA is responsible for the bubble is as true as the statement that the mentality behind the mortgage interest deduction is responsible for the bubble. No closer connection for one than for the other, but both are policies indicating that government highly values encouraging homeownership.
If that’s all you’re saying, it seems reasonable, but using the CRA as the only example is going to confuse people.
Sebastian wrote: “You can’t talk about banks without talking about their regulatory environment.”
While I think I agree with you Seb (that the regulatory environment was too lax), the whole point of MM’s post was that too much government regulation led to these outcomes – not too little!!
I quote: “John Carney has been doing a lot of blogging about the role of the CRA in the financial meltdown. That role is overstated by conservatives who are unwilling to admit that markets can have bad outcomes, but it is understated by liberals who are unwilling to admit that regulation, too, can produce hideous unintended consequences.”
So, SH, you don’t focus on:
the tax advantages for homeownership that have enormous bi-partisan support; or
the failure to regulate derivates, supported massively by Republicans, with Democratic support, and signed into law by Clinton; or
the reprehensible conduct of one A. Greenspan in keeping the cost of money way too low, in recommending ARMs at the height of the bubble, in denying the existence of the bubble, and in failing to exercise his existing regulatory power over financial institutions; or
the active steps taken by the Bush admin to block states from using their regulatory powers to investigate financial institutions.
No, you don’t mention any of those things because that might make your side look bad. Instead, you find a tiny little program designed to increase outreach to a historically underserved community and place the blame there.
Ever thought of applying to be a co-blogger with MM? When it comes to govt regulation, you’re two of a kind.
(which, at the end of the day, is kinda odd. San Diego is a city completely reliant on govt support, between the Navy, for jobs, and membership in Metropolitan Water District of Southern California, for water.)
“If I understand you correctly, then, the statement that the mentality behind the CRA is responsible for the bubble is as true as the statement that the mentality behind the mortgage interest deduction is responsible for the bubble. No closer connection for one than for the other, but both are policies indicating that government highly values encouraging homeownership.”
Absolutely. The mortgage interest deduction (and the change to tax rules on flipping houses) absolutely contributed in a huge way. If there were an easy and fair way to phase those out we should do so. (There probably isn’t an easy and fair way to phase those out so I’m not sure what the best policy would be. Probably worrying about a too big housing market isn’t a priority anymore).
Eric: “but it is understated by liberals who are unwilling to admit that regulation, too, can produce hideous unintended consequences”
And? These were highly regulated areas. The buying and selling of houses is highly regulated. Making loans is highly regulated. Being a bank is highly regulated. The regulations in this case had an aim in mind. That aim was to promote home ownership. All sorts of rules went that direction with that policy aim in mind. Rules that went against that policy aim *were not enacted even in the easy and smaller scale cases*. You note that Fannie Mae didn’t ’cause’ the crisis, whenever Barney Frank’s horrifically stupid comments are brought up.
But look at it from a regulatory point of view. Even in the case where the government completely controlled the rules–Fannie Mae, it was obvious that the poltics of pushing toward home ownership overrode financial responsibility. The same was true of regulations of the more normal banking market. The government aim was to worry about the outcome of getting more people into houses more than ancillary outcomes about what that might do.
The private market exploited that to the hilt and helped push up the bubble from that side. But that wasn’t underregulation. That was regulation with a specific policy priority. And Megan is precisely correct. That regulation policy priority had horrific unintended consequences.
Just because you don’t like the current policy outcome doesn’t mean that it was underregulation of the housing market. We got the housing regulation that both Democrats and Republicans of the time wanted. Regulation with the goal of increasing housing ownership.
“the tax advantages for homeownership that have enormous bi-partisan support; or
the failure to regulate derivates, supported massively by Republicans, with Democratic support, and signed into law by Clinton;”
I didn’t write the underlying post. But yes, all of those things were important. That is exactly what it means to have a governmental regulatory policy which has too much focus on one priority. But that isn’t underregulation. That is getting the exact political regulation you want considering your priorities. Calling that underregulation isn’t accurate. The reason why it looks like underregulation now is because we’ve decided that the unintended side effects are worse than the policy aim.
“Regulation with the goal of increasing housing ownership.”
You keep saying this. But the CRA had the primary goal of eliminating red-lining practices, which had very large discriminatory effects and were often put in place with discriminatory intent.
So, a better way to characterize the CRA would be: regulation with the goal of increasing housing ownership among those otherwise qualified, but denied credit on the basis of factors irrelevant to the risk.
Sometimes it shows that people can make the right call based on experience without being able to articulate why.
Well, it would be pretty interesting if people always made the wrong call in cases like this. Some ex girlfriends might suggest that I might be chosen as an example for that.
But the problem is not some sort of Gladwell like blink reflex operating here, but that the kind of system you advocate creates an environment that is remarkably resistant to non-insiders getting a loan, which means that they are automatically placed on the periphery of American life. (I’ve been swayed a bit by Turb’s arguments about how home ownership is not a completely unalloyed good, but I think that we can all accept that ownership is a marker of middle class acceptability)
Seb wrote: “Making loans is highly regulated.”
No, Seb, it isn’t. Hundreds of independent mortgage brokers were not.
Please try to come to grips with this.
” That was regulation with a specific policy priority. And Megan is precisely correct. That regulation policy priority had horrific unintended consequences.”
Prove it, Seb. Numbers, please. Please prove that it was this vague “regulatory environment” (meaning *only* the parts of the environment that encouraged home ownership) that was driving the mortgage industry, rather than profit-seeking.
This hasn’t been done. You keep avoiding whole swaths of issues, so that you can argue that the meek titans of the banking industry were swayed by George Bush’s and Barney Frank’s rhetoric into adopting suicidal practices.
I’m not advocating bank manager discretion. I’m just saying there are trade offs.
“Seb wrote: “Making loans is highly regulated.”
No, Seb, it isn’t. Hundreds of independent mortgage brokers were not.”
I don’t see the contradiction here: Mortgage brokers don’t make loans. They’re just a middle man between the banks and the borrowers. If a bank isn’t willing to loan you money, the mortgage broker can’t do a thing for you.
“If a bank isn’t willing to loan you money…”
Brett, in 2006 when Countrywide was originating mortgages as fast as it could, and buying NINJA loans from 3rd party originators as fast as it could, it wasn’t because of the CRA. It was because they had investment bankers knocking on their doors willing to buy the loans, so they could collateralize them and sell off the tranches. It was, pure and simple, about making money. Not about ending redlining.
Sebastian, your claim that the industry was highly regulated would be funny if it weren’t so painful to the taxpayer. Who was AIG’s regulator? Did they even have a clue what the financial services branch was doing?
Button up, dude, your ideology is hanging out.
I suppose it could be considered a little tricky to tease out.
* The Fed noted that only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas.
* CRA banks are 66% less likely than other lenders to make a high cost loan and 58% less likely than other lenders to originate high cost loans to low and moderate income borrowers. [from a study of data and the literature by Traiger & Hinckley LLP]
*Though CRA-covered lenders can meet their obligations by purchasing from non-CRA lenders in their areas, this was unlikely to provide a fertile dumping ground for subprime, as less than 2 percent of the higher-priced and CRA-credit-eligible mortgage originations sold by independent mortgage companies were purchased by CRA-covered institutions. [Fed comments above again]
*The Traiger study found that “CRA banks are twice as likely as other lenders to retain originated loans in their portfolio.”
*The Fed study also did some comparisons of subprime default just below and just above the relevant income cutoffs, on either side of CRA boundaries, etc., and found no noticeable difference.
So virtually none of the subprime lending in CRA-covered areas was being done by CRA banks, very little non-CRA paper was being bought by CRA banks to satisfy requirements, loans were much more likely to stay with the originating bank, and CRA-eligible subprime borrowers showed no increase level of default. Not necessarily dispositive, but highly suggestive. And this margin is too small to contain the studies of middle-to-higher income defaults vs. lower-income, which also show the pernicious effect knowing the CRA exists had on borrowers who didn’t even remotely qualify for it. Or something.
(Traiger & Hinckley have a news page with links to various PDFs on the CRA’s role, or lack thereof, in the crisis.)
See above, as there was at the very least a de facto difference, based on likelihood of retaining the original loan. For some reason, holding on to a mortgage tends to make a bank more careful in its lending. Post-1995, there was unfortunately the beginnings of substantial resale of CRA mortgages, but this only really seemed to hit its stride in 2003 along with the big subprime boom.
See above.
Meanwhile, regulatory enforcement of CRA declined after 2001, according to 2008 testimony before the House Financial Services committee, and regulations were further eased in Aug. 2005 by 70 Fed. Reg. 44256. Hmm, when did the bubble really get going, compared to when banks were more off the CRA leash?
Seriously, given how little higher cost loan origination was CRA-based, it seems almost laughable to place any blame on the CRA when the overwhelming factor was the deregulation of the mortgage market in 1999, when everyone and their uncle to get into mortage brokerage and securitization. Note the “de-” at the front of the dirty word “regulation” there.
Also, I know that this too is rather tricky, but before you decide to flog the Barney Frank canard repeatedly again, you might want to look into the record of which party controlled the House of Representatives 1993-2006, and the powers wielded by minority party members in that same lower chamber.
Who was AIG’s regulator?
The Office of Thrift Supervision. No joke.
–TP
Er, substitute “1995-2006″ above. And insert reference to Graham Chapman’s King Arthur and his numeracy problem.
Sebastian,
What regulation made Bear Stearns use 97% leverage to buy risky securities? What regulation brought down Lehman? What regulation made S&P (or was it Moody’s?) use models that simply didn’t admit the possibility of a housing price decline? What regulation made AIG sell Everests of CDS protection, and then be unable to put up collateral when its credit rating was reduced? What regulation made investment bankers assume that AIG’s protection was solid without checking to see exactly how much AIG had sold? What regulation made WallStreet in general ignore the massive systemic (i.e., undiversifiable) risks they were running?
Your argument has the tail wagging the dog.
Ummm, since you lose all formatting when you do a copy/paste, and have to insert it yourself afterwords –and there’s no way you don’t know that – no, I can’t see how that would happen.
No, you didn’t answer my question.
Would you please, please quit ducking, and just tell me what evidence you have for this narrative of yours. Do you have any? You certainly haven’t presented any yet. And, what type of evidence can you think of that would theoretically disprove your assertion?
Again, you haven’t presented that either. All you’ve given is an unfalsifiable hypothesis, a narrative which you, personally, seem to be comfortable with. Since you’ve already agreed that evidence is important, and that the scientific method is what you generally want to go with, could you at long, long last give some scintilla of evidence for your assertions, as well as telling us what would (in theory at least) falsify them?