[citation][nom]dane2532[/nom]More "redistribution". Anyone that wants it now can get it. He wants people that can't afford it to have it, just like letting them buy houses they couldn't afford... and see where that got us.And electric cars that you just plug in and recharge... to the power grid... to the power generating station, 45% of which burn dirty coal, and 25% which burn natural gas... more "redistribution".The censured congressman was right when he said to Obama... "YOU LIE".[/citation]
You can't blame the crisis solely on the CRA (I'm not saying it didn't play a part, but not as large of one as people think or as pundits say). 50% of the subprime loans responsible for the collapse were from non-despositary institutions which are NOT subject to the CRA. Another 25-30% were from subsidiaries that were not tied, or only very loosely tied to CRA rules. The remaining 20-25% were definitely tied to CRA (of course, of that 20-25%, only 16% of that amount went to low income families/areas).
The majority of the demand for subprime paper came from wall street. Sub-prime paper have yields approaching 9% because of the higher interest rates and additional fees which makes them more desirable than the typical mortgage paper which has yields of 5% or less. Of course, with higher yield comes higher risk, but that was hidden deep under all the bundling and rebundling that occurs in securitization resulting in a paper product that was AAA rated by the ratings agencies despite it actually carrying significantly higher risk.
So, when you're given an option of two sets of AAA paper and one yields 4% and the other 9%, which one are you going to choose? I can tell you if you're a foundation, you're DEFINITELY going to choose the 9% due the restrictions of foundations (foundations aren't taxed as long as they give away 5% of their value to charities or nonprofits and most foundations are restricted to only investing in AA or AAA rated investments - to prevent poor management from destroying the foundation).
That demand for the subprime paper resulted in the people on the supply side (lenders) doing whatever they could in order provide the supply (i.e. making bad loans to bad risks - and they honestly didn't care if the loan would be paid back because they were selling the mortgage security off in a few days to a month anyway), it was simply a case of good ol' fashioned supply and demand (and a total abandonment of logic by all involved, it simply makes no sense for two equally risk-exposure rated products to carry such different returns).
I would also say you certainly can't blame the CDO/CDS debacle on the gov't, because they were totally unregulated (unless you want to blame the gov't for not regulating them). The gov't certainly wasn't forcing Lehman, Bear Stearns or AIG to leverage themselves at 15:1, or even 30:1 in the worst cases, with those CDO/CDS's. CDO/CDS's were a big part of the reason the whole system got affected by the bad mortgage securities. Normally, when a bubble blows up and bursts (e.g. dot-com) it just affects those industries (telecoms, tech companies, a few OEMs) and the people heavily invested in them. If it hadn't been for the absolutely insane leverages investment banks, depositary banks and other institutions had been exposing themselves to through CDS's the mortgage crisis would have just hurt the housing market, a few banks, building material suppliers and the security holders. Some would have gone bankrupt, some seized by FDIC and a few others bought out and that would've been the end of it. But, instead we had these danged CDOs that (very basically) meant if a company A defaulted on a loan owed to company B, another company C would be obligated to pay a set amount to company B (unless of course it's a synthetic CDS which pretty much throws ALL reason right out the window and is just simply gambling). Of course, if company C can't afford to pay, they may go bankrupt, triggering more CDOs and since company C didn't pay company B, company B may go bankrupt triggering more CDOs.... and so on until the entire world economy collapses (this was the reasoning behind the bailouts, to stop the cascade). This effectively increased the exposure of many institutions to these bad loans even if they had nothing to do with them originally and resulting in an incredibly complicated spider's web of ties between companies all over the world based on the foolish notion that "nothing will ever go wrong ever again so I don't have to act responsibly".
And of course, you can't forget the homeowners. The lenders may have acted as enablers but, ultimately, a large portion of the blame simply lies on the American people. It was absolute idiocy to think the housing market values increasing at rates faster than the incomes of the people buying said houses was a reasonable thing and anything other than a bubble. The "I'll buy this house, even though I can't really afford it, but I'll just make payments until the value goes up and then I'll resell this house and pocket the extra and move into something I can afford"-mania that was sweeping this country was complete idiocy as was the idea that it'd continue forever.
So, if you're looking for some one thing to blame, there really isn't one thing, but to place it solely on a 1977 law is just naive. The fault lies at the feet of the american people, CDS/CDOs, the gov't (both -D and -R), ratings agencies who are paid based on the value of what they rate (and the value is based on the ratings they give) and investors who really didn't look closely at what they were investing in.
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