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Obama, Meet Santayana

 

Our president, in his wisdom, is bothered that the housing rebound is leaving out people with bad credit. So his administration is pushing banks to forget the immediate past, swallow their worries, and shell out: 

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps. 

This is making one or two observers, your present correspondent included, break out in hives. Ed Pinto, a former top executive at Fannie Mae and now a resident fellow at the American Enterprise Institute, fears this policy could “open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from.” But we’d better just slap on the cortisone cream and deal with it. The problem with the recovery is that it’s been primarily benefiting “established homeowners with high credit scores.” We obviously can’t have that. 

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Members have made 29 comments.

  1. Profile photo of Larry3435 Member

    Deja vu all over again. Well, when it all blows up (again) Obama can blame the Republicans (again). Maybe he’ll even win a third term that way, if he can get Chief Justice Roberts to agree to call it something other than a third term and avoid that pesky Constitution that is always getting in his way.

    • #1
    • April 4, 2013 at 2:34 am
  2. Profile photo of Israel P. Member
    Larry3435: 

    if he can get Chief Justice Roberts to agree to callit something other than a third term and avoid that pesky Constitution that is always getting in his way. · in 1 minute

    No one will be granted standing to challenge.

    • #2
    • April 4, 2013 at 2:36 am
  3. Profile photo of thedude Member

    So, as a young person with a great, steady job, fantastic credit and a house that lost value over the past 5 years, I will say, banks need to loosen credit for housing to rebound. My wife and I, who make a lot of money, have found it extremely hard to get a loan, even with fantastic credit. Credit is too tight and the housing market outside of a few key metro areas that are growing is locked up because of that. If you want an economic rebound, housing needs to rebound. Credit needs to be loosened. I know this puts us at risk, but, if you have great credit, you should able to be more aggressive. If you have low credit, you should be forced to be conservative.

    • #3
    • April 4, 2013 at 4:24 am
  4. Profile photo of Western Chauvinist Member

    Dude? You have a job, good credit, and a house? I don’t think this move by the administration is intended for you. 

    This “credit loosening” isn’t meant to make responsible parties act responsibly. It’s intended to shift the risk from the debtor to the banks to the taxpayers. Again. 

    It’s a bubble being re-inflated, Dude. And responsible taxpayers are going to end up with stuff all over their faces. Again.

    Will liberals take responsibility for the mess this time, or will it be George Bush’s fault? Again.

    If I sound repetitive, it’s because I’ve seen this play before. I still don’t like the ending.

    • #4
    • April 4, 2013 at 4:55 am
  5. Profile photo of Percival Thatcher

    So, after finally being handed what looks like a proto-recovery, Captain Fairness wants to “encourage” banks into lending money to people whose ability to pay them back is …umm… questionable. And since it’s the Department of Justice being “urged” to “provide assurances,” we are relying in part on the probity and resilience of Eric Holder to resist reinflating this bubble.

    What is the price of gold again?

    • #5
    • April 4, 2013 at 5:24 am
  6. Profile photo of M.D. Wenzel Member

    This is a brilliant political move by Obama. Reinflate the bubble, create the illusion of growth, and then claim your policies created recovery. By the time the bubble pops someone else will be President and besides, you can always blame it on greedy bankers.

    • #6
    • April 4, 2013 at 5:36 am
  7. Profile photo of Reckless Endangerment Member

    My Ricochet handle comes from a great book about this very practice that Judith describes. Not only are we doomed to repeat the mistakes of the past, but also we cannot “easily” bailout out Fannie and Freddie again. The sad truth is that as long as these institutions can bend to political pressure, the market for housing can never be truly reflective of market realities. Sure the price of housing has come down in many areas worst hit by the recession, but what we really needed was a honest to goodness bottoming out while individuals could go through the bankruptcy process if that is/was the best course for them. Want to know a major reason why growth is so sluggish? No one knows what to do with their underwater homes. The Dude is correct, housing is a path to recovery. However, we don’t want it to resemble the 2000s boom recovery that was ultimately leveraged debt financed.

    • #7
    • April 4, 2013 at 5:55 am
  8. Profile photo of M.D. Wenzel Member

    Housing may be the path to recovery, but it is unlikely. It is all about supply and demand. There is an erroneous belief, even among some on the right, that politicians can pick out the industry that will be key to future growth and intelligently direct resources in that direction. Prosperity emerges when the collective wisdom of billions of individual transactions direct resources to their highest use.

    • #8
    • April 4, 2013 at 6:30 am
  9. Profile photo of The Mugwump Inactive

    We have an entirely equitable system that allows people with bad credit to find housing. It’s called renting.

    • #9
    • April 4, 2013 at 6:35 am
  10. Profile photo of Sandy Member
    ~Paules: We have an entirely equitable system that allows people with bad credit to find housing. It’s called renting. · 1 minute ago

    Not only that, but in a difficult labor market, renting allows mobility that ownership does not. Apparently the President looks at Detroit and likes what he sees.

    • #10
    • April 4, 2013 at 6:40 am
  11. Profile photo of KC Mulville Member

    On the morning drive to work, I was listening to the GLOP (Goldberg Long Podhoretz) podcast. They had a brief segment on how dense and obtuse these Obama hacks are. For instance, the Obama speechwriters actually used the phrase “peace in our time!” in an Obama speech, apparently unaware or unconcerned that this was thumbnail phrase that identified a spectacularly failed policy.

    You’re right – they don’t get it. They project themselves (as the podcast said) as the coolest guys in the room, and they’re likely to be the least aware and most dangerous.

    • #11
    • April 4, 2013 at 6:54 am
  12. Profile photo of Brian Watt Thatcher

    From the Wikipedia article on the history and effects of the Community Reinvestment Act passed by Congress and enthusiastically pushed by Marxist-inspired community organizers in cities like Chicago and groups like ACORN under the subhead: Alleged relation to 2008 financial crisis. Perhaps the word “alleged” will be removed at some point:

    Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[101]

     In “The Trillion dollar Bank Shakedown that Bodes Ill for Cities,” Manhattan Institute scholar Howard Husock quoted the CEO of a midsize bank who noted: “… 20 percent of his institution’s CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure.”[106] American Enterprise Scholar Edward Pinto noted that, in 2008, Bank of America reported that its CRA portfolio, which constituted only 7 percent of its owned residential mortgages, was responsible for 29 percent of its losses.[107]

    • #12
    • April 4, 2013 at 7:01 am
  13. Profile photo of Brian Watt Thatcher
    DrewInWisconsin: Sometimes you have to wonder if they’re intentionally trying to destroy the economy. · 1 minute ago

    As long as there are a few golf courses left open for the president a few luxury resorts maintained for the First Family. For the rest of the country…let them eat cake.

    As to whether Obama is clueless or deliberately aims to ruin the economy and America…to quote a former Secretary of State, “What difference does it make?!”

    • #14
    • April 4, 2013 at 7:11 am
  14. Profile photo of tabula rasa Member

    The liberal mind cannot wrap itself around the obvious truth that minor tweaks to a fundamentally flawed idea still equals a fundamentally flawed idea.

    • #15
    • April 4, 2013 at 7:55 am
  15. Profile photo of Tommy De Seno Contributor

    I disagree with Judith as strongly as I can. We MUST loosen up the flow of capital.

    They over-tightened the lending rules to the point where folks with good credit can’t obtain capital.

    Let’s bring up a couple of issues:

    Credit reporting in the US is bull-(CofC self-edit). The rules of how your credit score rises and falls are ridiculous. It’s also far too standardized. Do you really think that every person who got beaten up when the housing market crashed is a risky dead beat? 

    Also – in a capitalistic society, access to capital is vitally important to all. I hate having a few bankers control it.

    Michael Milken, one of my heroes, ripped away from the almighty few the flow of capital in America. That’s exactly why they did him in.

    If they don’t loosen up the money soon, I’d like to see the rise of another Milken.

    • #16
    • April 4, 2013 at 8:18 am
  16. Profile photo of Brian Watt Thatcher
    Tommy De Seno: I disagree with Judith as strongly as I can. We MUST loosen up the flow of capital.

    They over-tightened the lending rules to the point where folks with good credit can’t obtain capital.

    Let’s bring up a couple of issues:

    Credit reporting in the US is bull-(CofC self-edit). The rules of how your credit score rises and falls are ridiculous. It’s also far too standardized. Do you really think that every person who got beaten up when the housing market crashed is a risky dead beat? 

    Also – in a capitalistic society, access to capital is vitally important to all. I hate having a few bankers control it.

    Better to loosen up capital to those who are good credit risks. The government doesn’t have the money to reimburse banks who post losses for defaults from unworthy borrowers without adding to the national debt. The Feds need to get their big fat nose out of the loan business and stop telling banks who they ought to loan money to. Let the market work on its own. Let the market decide the risks and the potential rewards rather some incompetent bureaucrat.

    • #17
    • April 4, 2013 at 8:30 am
  17. Profile photo of KC Mulville Member
    Tommy De Seno: I disagree with Judith as strongly as I can. We MUST loosen up the flow of capital.

    Normally I’d agree, Tommy, but there are more problems here than just the flow of capital.

    The idea of basing loan and capital decisions on political considerations, instead of prudent business practices, is what leads to bad business decisions.

    More importantly, though, we’re not starting from scratch. For all the money out there, there’s a good reason why the banks are being stingy with it – the wreckage of the financial crash still hasn’t been cleaned up yet. We still have a lot of people under water.

    The eventual reckoning won’t happen all at once, but the metaphorical day of reckoning is still coming. The banks know it, and they’re busily covering their behinds now.

    • #18
    • April 4, 2013 at 8:32 am
  18. Profile photo of Brian Watt Thatcher

    Regarding the federal government’s expertise to whom money should be loaned…Solyndra…Fisker…and close to $17 Trillion in debt. And we look to politicians for financial advice why exactly?

    • #19
    • April 4, 2013 at 8:59 am
  19. Profile photo of Paul Dougherty Member

    From the article, “…and not giving any opportunity to restart the kind of irresponsible lending that we saw in the mid-2000s.” Attributed to a senior administration official.

    Part of the problem, as I see it, is the incomplete understanding of what happened to trigger the 2008 financial crisis. The borrowing, also, was irresponsible. If borrowers were to repay loans, no crisis. These borrowers were convinced that it was a good idea to enter the mortgage contracts. Not entirely were they convinced to take these loans by the lenders alone.

     Borrowers were failed by families that didn’t teach prudence, institutions that instructed more in social justice than personal finance. And also politicians that benefit from the appearance of “providing” a lifestyle not earned by their constituents. Have any of these factors been fixed?

    • #20
    • April 4, 2013 at 9:19 am
  20. Profile photo of Amy Schley Member

    The fundamental problem is that the nation-wide housing market will *never* surpass the 2005 highs. There’s simply no large enough group in the demographic pipeline able to buy these enormous houses, not when my generation is facing 50% un-/under-employment and massive student loan debt.

    Across the world, when the number of workers is outnumbered by the government dependents (and getting a government check for anything other than “services rendered” makes one a government dependent), the housing prices drop. The elderly want to sell their homes to retire and get money out of their “investment,” but there are too many of them trying to do the same thing, and the workers coming up after them are too few and too poor (from supporting all those government dependents) for the demand to match the supply.

    • #21
    • April 4, 2013 at 9:25 am
  21. Profile photo of Tommy De Seno Contributor

     I ask everyone to look at your own credit score and ask if you think it fair or indicative of who you are.

    It’s nothing but a scam to charge higher rates to certain borrowers. I can’t believe Americans have fallen for it for so long.

    Here’s a personal example: At my office, I always paid my postage account with Pitney Bowes in full, because it’s a vital tool for may business. So Pitney contacts me and says, “Tom, you are a great payer. We’d like to triple your access to credit with us.” So I did. The transaction cost me 7 points off my credit score. Fair?

    If you think so, I have more.

    I’m not arguing to loan capital to folks who are a risk.

    I’m arguing to stop claiming folks are a risk when they are not, allowing the banks to employ this cheating trick: 

    “Your credit score is tier two, which is lower than tier one, so we have to raise your interest rate, giving you a higher monthly payment, because you are at risk of not being able to make the lower monthly payment.”

    Good grief.

    • #22
    • April 4, 2013 at 9:30 am
  22. Profile photo of Rob Long Founder
    KC Mulville: On the morning drive to work, I was listening to the GLOP (Goldberg Long Podhoretz) podcast. They had a brief segment on how dense and obtuse these Obama hacks are. For instance, the Obama speechwriters actually used the phrase “peace in our time!” in an Obama speech, apparently unaware or unconcerned that this was thumbnail phrase that identified a spectacularly failed policy.

    You’re right – they don’t get it. They project themselves (as the podcast said) as the coolest guys in the room, and they’re likely to be the least aware and most dangerous. · 2 hours ago

    But, sadly, this is a pretty smart and cynical move. Subsidize a “recovery” and buy yourself some political capital.

    • #23
    • April 4, 2013 at 9:45 am
  23. Profile photo of Brian Watt Thatcher
    Rob Long
    KC Mulville: On the morning drive to work, I was listening to the GLOP (Goldberg Long Podhoretz) podcast. They had a brief segment on how dense and obtuse these Obama hacks are. For instance, the Obama speechwriters actually used the phrase “peace in our time!” in an Obama speech, apparently unaware or unconcerned that this was thumbnail phrase that identified a spectacularly failed policy.

    You’re right – they don’t get it. They project themselves (as the podcast said) as the coolest guys in the room, and they’re likely to be the least aware and most dangerous. · 2 hours ago

    But, sadly, this is a pretty smart and cynical move. Subsidize a “recovery” and buy yourself some political capital. · 17 minutes ago

    Wait a minute…just had a sudden loss of memory…”Subsidize a recovery”…oh, yes…now I remember…$800 Billion + Stimulus package…shovel-ready jobs…it’s all coming back to me.

    • #24
    • April 4, 2013 at 10:07 am
  24. Profile photo of Brian Watt Thatcher
    Tommy De Seno: …

    I’m not arguing to loan capital to folks who are a risk.

    Tommy, read the first paragraph in the quote that Judith cites over again. Loans to risky borrowers is precisely what is being advocated.

    If you have a business plan for a venture that seems worthy of a bank loan, by all means set up a meeting with a banker or some angel investors…but do you have to bring along a government representative to endorse the venture? 

    The credit score method is a tool that’s been in use and has worked for some time. Maybe we should do away with credit ratings for governments, too. Then everything will be much rosier.

    • #25
    • April 4, 2013 at 10:16 am
  25. Profile photo of M.D. Wenzel Member
    Tommy De Seno: I disagree with Judith as strongly as I can. We MUST loosen up the flow of capital.

    The important question is who is “we?” Who decides how loose, or tight credit should be? the Fed, the Treasury, the President? Or should lending decisions be left to banks? It is banks who bear the risk (or at least would in the absence of bailouts) for the loans they make.

    If there were tons of good borrowers in the market not being served don’t you think some smart banker would step in to make the loans? There are obviously some other issues at play making loans negative NPV projects for the banks.

    • #26
    • April 4, 2013 at 11:05 am
  26. Profile photo of KC Mulville Member
    Rob Long

    But, sadly, this is a pretty smart and cynical move. Subsidize a “recovery” and buy yourself some political capital.

    Agreed.

    When you own the perception, I guess, reality is just a nuisance.

    • #27
    • April 4, 2013 at 11:07 am
  27. Profile photo of Israel P. Member

    We all know that state lotteries are a tax on stupid people and that is patently unfair.

    We should deal with this injustice by lowering the price of lottery tickets and making payouts on at least twenty-five percent of the tickets.

    • #28
    • April 4, 2013 at 12:50 pm
  28. Profile photo of Western Chauvinist Member
    Tommy De Seno: …

    I’m arguing to stop claiming folks are a risk when they are not, allowing the banks to employ this cheating trick: 

    “Your credit score is tier two, which is lower than tier one, so we have to raise your interest rate, giving you a higher monthly payment, because you are at risk of not being able to make the lower monthly payment.”

    Good grief.

    Yours is a separate complaint, Tommy. The administration is advocating risky loans backed by taxpayers’ deep pockets.

    There are two ways to have a lousy credit score: 1) owe money and don’t make timely payments; 2) don’t owe anyone money.

    If I were a young person today, I’d opt for position 2, even over having a great credit rating.

    We’re in the happy position of having a great credit score and being able to pay off our debts, if we must. But, the world would have to make a lot more sense before I’d go looking for ways to be in debt right now.

    Or, you could go fearlessly into the night, believing that the Central Bank Superheros will save us!

    • #29
    • April 5, 2013 at 12:45 pm