November 17, 2008

From A Tiny Acorn

Or - affirmative action goes real estate! What could possibly go wrong?

"Obama Sued Citibank Under CRA to Force it to Make Bad Loans."

THE seeds of todays financial meltdown lie in the Community Reinvestment Act - a law passed in 1977 and made riskier by unwise amendments and regulatory rulings in later decades.

CRA was meant to encourage banks to make loans to high-risk borrowers, often minorities living in unstable neighborhoods. That has provided an opening to radical groups like ACORN (the Association of Community Organizations for Reform Now) to abuse the law by forcing banks to make hundreds of millions of dollars in subprime loans to often uncreditworthy poor and minority customers.

"Citigroup Inc (NYSE:C - News) plans to shed about 10 percent of its global workforce, a person familiar with the matter said Friday, as the bank tries to return to profitability...."

Related - "affirmative action" for the chairman of the Senate Banking Committee, Chris Dodd. Transcript of an interview that has been banned from the airwaves.

Posted by Kate at November 17, 2008 7:55 AM

"Yes we can" [do whatever we want].

Somewhat makes the Italian restaurant cash-drop technique look like "small town cheap", doesn't it?

Posted by: shaken at November 17, 2008 8:01 AM

I just watched some tool from the Rotman School of Business say that the seeds of this go back all the way to the Bush tax cuts of 2001 along with the low interest rates in 2003 - 2005. He also advised massive deficits to solve the problem. I guess he never heard of the problems with the strategies of higher interest rates and increased govenment spending in the 1930s. All we need is a protectionist president and it will be soup lines for all.

Posted by: Brian Mallard at November 17, 2008 8:37 AM

HotAir links to a very informative article at the San Fransico Chronicle detailing how to get out of paying off your mortgage.

All us idjits that have been living up to our word and other out moded ways of thinking need not apply.

Posted by: AtlanticJim at November 17, 2008 8:50 AM

To develop a full grasp of the implications of what is taking place, after checking the Baltic Dry Index, I suggest taking a glance at ISBN 1-885073-64-X, "A Short Course in Internation Payments, 2nd Edition", by Edward G. Hinkelman.

Reluctance to accept interbank risk positions represented by commitments to honor Letters of Credit is preventing outbound flows. Empty containers themselves are becoming scarce as they cease to flow.

This forecasts shortages, not only of manufactured goods, but important food and pharma industry precursors. This was evidenced during the melamine scare when inspections were stepped up. The food and pharma industries nearly immediately felt the scarcity and scrambled to source these ingredients. At that time, there was enough (just) buffered in the continental supply chain, and the interruption brief enough, that the problem was locating the already onshore product in the distribution system, and directing it.

It's different this time.

Most people are unaware of how dependent the food and pharma industries have become on Asian-sourced precursors. "Yes We Will" [become aware].

Not to worry, we have Nancy and Harry to guide us through these challenging times.

Posted by: shaken at November 17, 2008 9:00 AM

Why hasn't CNN and other MSM outlet relive this message to the public. Like they have been doing with Sarah Palin.

Posted by: Jen at November 17, 2008 9:59 AM

The actions of the press in this case and other related incidents is the stuff that makes for reporters being dragged out and shot on the sidewalks in other countries. Very fortunate they live in North America.

What has been done in the way of Left Wing Ideology enhancement is criminal.

Posted by: Pat at November 17, 2008 10:24 AM

I think one of the best ways to think about this is that the forced sub prime lending is the "necessity" that drove the innovation. The innvoation were the Mortgage Backed Securities that were siced and diced and resold, a good description of which is in the Micahel Lewis article that Kate linked to earlier.

Once they figured out how to serve this requirement properly, like good capitalists they figured out how to make money at it....then the refined the process, liek the good financial engineers they are, to improve the profitability and then they took this "great idea" around the world making 100's of millions, never once asking or being asked, what was the risk, what was the business model, what happens in the "n" cases (in other words not proper engineering or banking.

Not all risks were built and priced into the product and once it hit second or third derivative all contact with the underlying asset was lost.

In an even more stunning development outlined in Lewis' article the normal shorting that goes on enabled the creation of of more "synthetic" derivatives. The act of the short (selling a borrowed asset) allowed the creation of a non existent security so that it could be loaned to the shorter, since the appetite for shorting seemed insatiable as some saw it for what it was.

That last bit of info really explains the explaosion of these securities, look at the graphs. They start small and then about 2002, I think, they take off at ever increasing speeds.

The easy money went to both less than prime borrowers AND good borrowers. Yes even people who borrowed well in the past get in over their head in a mania. Problem is it only takes a minority percentage of a loan pool to go bad to kill the profitability of the whole pool and sink whatever funding there was backing those good and bad loans. 10% is a phenomenal default rate and it has exceeded that.

Think about that one, getting an A on your exam still means you fail. Thats what lending is, it needs to be A+ to be profitable in the long run.

I will say again there may be a place where the fire or malfunction started but it was a cascade failure across multiple systems that did this. The Sub Prime requirement was allowed to get out of hand. America being America made it bigger, better, faster than anyone else could imagine.

Posted by: Stephen at November 17, 2008 10:49 AM

This is something McCain should run with...

Oops I forgot McCain lost, and Americans are a bunch of spoiled brats, who have embarrassed themselves by electing a totally unqualified person to make themselves feel better. The Americans deserve and need what they get. Lets just hope the pain doesn't spread too far north.

Lets also hope that PMSH can hold the gov't together long enough to let Obama do his thang, so Canadians can SEE what "change" really means. One Idol is enough, we don't need a poor imitation Canadian Idol to take the reigns in these troubling times.

Posted by: Indiana Homez at November 17, 2008 11:24 AM

What the DEMs don't yet get, is that the credit crunch in large part is on their docket.

The subprime loan debacle was created, maintained and protected by repeated refusal of Democrat led, Congress and Senate to "cap" Fannie Mae and Freddie Mac to prevent a further bleed out.

Now instead of cauterizing a wound, they let it bloom into an artery gusher. Hence the $700 billion tourniquet. And everyone in the mortgage lending business is taking the hit for a massive failure in oversight.

There is a sweet justice in the DEMS taking control of all three arms of government. The DEMs originated and engineered the problem right to the end, even though they were warned by Pres. Bush (2003), Sen. McCain (2005) and Fed Chairman Alan Greenspan (2006) REPEATEDLY.

But then when the top Democrat names were getting contributions from Fanny Mae and Freddie Mac the incentive to 'cap' the companies would have a deleterious effect on contribution levels.

"Senate Banking Committee Chairman Christopher Dodd and other Democratic lawmakers asked regulators to EASE restrictions on the mortgages and mortgage bonds that Fannie Mae and Freddie Mac can buy. The companies are the largest sources of money for home loans.

Bush is ``asleep at the switch,'' Senator Charles Schumer of New York, a Democrat on the banking committee, said in a statement today.

``We need short term solutions and long term vision, not stalling,'' Schumer said. ``That action should begin with lifting the portfolio caps on Fannie Mae and Freddie Mac to help stabilize the market.''

Schumer said that after talking to Treasury Secretary Henry Paulson yesterday he believes that Paulson hasn't excluded the option of raising the portfolio limits sometime in the future.

``I came away with the view that while he didn't think it was necessary now, he might not rule it out in the future,'' Schumer said in a telephone interview. Treasury spokeswoman Jennifer Zuccarelli declined to comment.


Fannie Mae, based in Washington, last week asked the Office of Federal Housing Enterprise Oversight to lift a cap on its mortgage assets, which now total about $722.5 billion."


The U.S. Treasury and Federal Reserve since 2005 have characterized the companies' holdings more as a threat to market stability than a lifeline in times of shrinking credit. The regulators, including Ofheo, have called on Congress to mitigate the ``systemic risk'' by creating a regulator with power to pare the companies' assets.

``The administration's response to the continued turmoil in the mortgage market is wholly unsatisfactory,'' Dodd said, while calling again for higher limits on the companies' mortgage assets. ``More can and should be done.''

To contact the reporter on this story: James Tyson in Washington at
Last Updated: August 9, 2007 21:11 EDT

Thus all the while that they knew there was a "systemic risk" to the banking system Dodd and other like minded DEMS were auguring for HIGHER caps on Fannie Mae and Freddie Mac!! (IE accelerate the money train rolling straight off the track.)

We await the DEMs led solution to the credit crunch. Fortunately, the patient is only turning a whiter shade of pale, but the heart is still beating. An economic blood transfusion might be appropriate at this juncture.


Hans-Christian Georg Rupprecht, Commander in Chief

Frankenstein Battalion
2nd Squadron: Ulanen-(Lancers) Regiment Großherzog Friedrich von Baden(Rheinisches) Nr.7(Saarbrucken)
Knecht Rupprecht Division
Hans Corps
1st Saint Nicolaas Army
Army Group “True North”

Posted by: Hans Rupprecht at November 17, 2008 11:33 AM


Don't blame the peasants - they don't have a clue.

Blame the media. They told the peasants what to think and the peasants fell in line as they just don't know any better.

Posted by: Warwick at November 17, 2008 11:45 AM

Agreed with Indiana Homez and I think it had better start with the new parliament coming up. If the silent majority does not hold these people responsible they will listen to the complaining piss-ants and we will find Canadian taxpayer in national debt up to our ears to protect the very few. The media is already conditioning us to just accept this as a must repair of the bailout propaganda.

Posted by: Merle Underwood at November 17, 2008 11:58 AM

Now that the foxes are in charge of the henhouse, what other treats are in store?

It was an admirable goal to allow minorities access to mortages based on income.

When it crossed the line where lending institutions were cowed into lending to people who did not even have jobs or did not have incomes to support mortgage payments, what the f**k do you expect would happen?

The face Obama was a lawyer who launched a lawsuit on behalf of ACORN in no surprise, really.

He went from lawyer to Commmunity Organizer, exactly what the second and third letters of the acronym stand for.

Much like the Soviet Union, the people went for it because it sounded like a good idea at the time.

It's going to take many years for the US to recover from this entitlement culture.

Thankfully, after 40 years Canada is slowly emerging out of the bureaucratic nightmare. It'll take some time still, but Canada is headed in the correct direction.

Listen closely to the car bailout, which Pelosi would like to bundle in as part of the $700 billion bill the Democrats stuck on the American taxpayer.

Posted by: set you free at November 17, 2008 11:59 AM

Wow! And I thought the Federal Liberals had great scams for buying votes from minorities! The shenanigans of the US Democratic Party sure puts 'em to shame though! Their scams are a couple of orders of magnitude grander and more sophisticated!

In a perfect world, Obama would be impeached for this before he even got to Inauguration Day.

Posted by: Edward Teach at November 17, 2008 12:08 PM

Obama might have wom but the battle he has to face are not from american pathetic media; it is from the most toughest reporters from around the world and make no mistake, these reporters already know who what where OBAMA stands for and most likely will ask him about his association with Aryes, Acorn and other radical groups.

It will take a great american reporter who speaks for the public (not aid OBAMA or Palin or anyone) to ask OBAMA his relationship with Acorn the CITIBANK etc.
The american media like canadians own media don't seem to get it-that the more they hide from the public is the more the bloggers go to work to do the job failed by the mainstream media.

Posted by: Jen at November 17, 2008 1:40 PM

Hey, don't blame Texas, we went for McCain.

With the economic downturn caused essentially by idiot-heads of committees in Washington and idiot financiers in the brokerage industry, it would have been very hard for a presentable Democrat to lose. Particularly when Republicans (partly through Democrat manipulation of the early primary process) nominated a RINO who rejected the Republican brand.

Interestingly, Republican governors had a big conflab the other day and fully understand the damage that McCain did to our possibilities. Palin spoke, and it appears that Republican governors are going to assert a lot more states' rights leadership in the face of Obama's initiatives.

Remember, over 58 million of us voted against Obama. Despite McCain's weakness as a Republican candidate, he was still on top until the idiot financial collapse occurred.

Posted by: Greg in Dallas at November 17, 2008 1:55 PM


Look at the bright side. At least you have Tony Romo!

Posted by: Indiana Homez at November 17, 2008 2:19 PM

Tom Scott is exactly why the Democrat/NDP house are pressing ahead with the Fairness Doctrine. Don't expect them not to implement some control of bloggers who tell all. The same thing is going on in Canada. Conservative radio hosts do not get equal prime time in British Columbia (CRTC fear?). I can't speak for other areas. There are also rumblings of internet control with the usual disguises of protection from ourselves.

""Prentice told the Commons he's keeping an eye on the situation.
"The Internet is not regulated in Canada. We continue to monitor the discussion that is taking place. There is no regulation of the relationship between Internet providers and consumer, Mr. Speaker, but we'll continue to see how the issue unfolds."

Posted by: Gunney99 at November 17, 2008 3:16 PM

If the democrats try to introduce the "fairness" doctrine (the most orwellian named piece of brownshirted intimidation yet devised,) all the GOP has to do is add an ammendment to include TV and Newsprint. Having to give the GOP fairness in TV and Print would be far more a loss than mandating an unlistened to Air America show.

The bill would die quicker than Kate's poor doe.

Posted by: Warwick at November 17, 2008 4:08 PM

Well, remember that Kennedy was untouchable by the press at the time for his "extracurricular activities" in certain areas of his life. Eventually though, truth comes out . . . . .

Time will tell here, we are just perhaps having a chance to digest what will be "discovered" in ten or fifteen years about Obama and this election, by which time peoples' memory will be clouded, and others who could tell "what really happend" infirm or deceased.

Posted by: Erik Larsen at November 17, 2008 4:12 PM

The economic depression coming (No its not just an adjustment) will weed out a lot of the wacko's. There won't be enough producers to support them. All kinds of stupidity will have to be axed for lack of funds. I have not a little faith in Americans fighting against alien (European )socialism. Europe will be to busy trying to survive. AS for GW, its deader than last weeks tuna sandwich. Obama will be playing hit the gopher, as problems crop up. There will be plenty of them.

Posted by: Revnant Dream at November 17, 2008 5:45 PM

Greg in Dallas - God Bless Texas!

Posted by: Jema 54 at November 17, 2008 6:09 PM

I agree 100% that this was a contributing factor but the poor people of America were not holding a gun to the CEO's of America's banks and forcing them to hand out bad loans and you know it Kate.

Sub prime loans didn't really get kick started until this century as interest rates plummeted and made home buying attractive. From 1996 to 2004, only 9% of mortgages were subprime. In 2004-2006 21% of all mortgages were. The wall street journal reported in 2006 that 61% of all subprime loans were made to people who would qualify as regular prime borrowers.

What does that tell you? The mortgage corps were convincing people to take on subprime loans when they would in fact qualify for a prime loan. What is the difference between a prime mortgage and a subprime mortgage? Higher interest rates in a period with historically low interest rates! How shocking that they would like to increase their profit margin!

What does that all point to? Financial institutions leveraging subprime loans for their own gains. Add in the incentive to refinance homes in the U.S. (second mortgages are attractive since all interest payments and some principal payments are 100% tax deductible), and you've got a country drowning in debt with all their equity suddenly disappearing out from under them, making them unable to refinance their homes or posessions, leading to a feedback loop that ends with bankruptcy and foreclosure.

Posted by: barjebus at November 17, 2008 6:22 PM


""""Well, remember that Kennedy was untouchable by the press at the time for his "extracurricular activities" in certain areas of his life. Eventually though, truth comes out . . . . . """"""


problem the truth has been coming out, but after 45 years, to what good!!

I hear (I have read many books on this) bits every so often, but most people don't, or don't care anymore, and so it will be with O-bambam.

Posted by: GYM at November 17, 2008 6:49 PM

GYM - agree with your comment - an interesting new variable however will be the impact of blogs.

Before, the media was better controlled, and shall we say an old boys' club, willing to forgive each other's warts and pimples and all.

It will be interesting to see if blogs get "penetrance", ahem, so to speak

Posted by: Erik Larsen at November 17, 2008 6:54 PM

What astounds me is that kids who go to "journalism" school, think they are being "progressive" and "radical" and "far-out" by conforming to orthodoxy, and repeating by rote.

Posted by: RW at November 17, 2008 8:05 PM


I've given my somewhat glib response some more thought. I think that the failure of McCain and the lack of scrutiny of Obama relates to what I would term presbyo-iconoclasm.

By that, I would speculate that there is a large faction out there that subscribes to old is bad, new is good, no matter what.

Dole = old = war veteran = bad. Clinton = young = dynamic = peacemaker = good

McCain = old = war veteran = bad. Obama = young = dynamic = peacemaker = good

Now I'm really depressed.

Posted by: Erik Larsen at November 17, 2008 8:08 PM

"It was an admirable goal to allow minorities access to mortages based on income."

Its not admirable at all. Its simply naivete and foolhardy. Most lefties simply don't understand simple business and economics. There are blinded by this foolhearty idea that people who don't want to help themselves should be helped by people who are hardworking and successful.

The homeless in Vancouver is a good example. The new mayor elect (Robertson) campaigned on eliminating homelessness in Vancouver by 2015. And he made this promise with the looming credit crisis. There isn't enough money or time available to keep proposed housing accomodation in a livable condition for these vermin(most of them)As Bruce Allen said on a recent radio broadcast"you can't get people to respect their living accomodations when they don't even respect themselves-that is why they are on ther street in the first place."

Horny toad

Posted by: Horny Toad at November 17, 2008 8:10 PM

homeless folks.

actually a good design for them would be a pack of culverts contained in a nice douglas fir frame(keep the BC forestry industry going), at the beginning of the morning tilt them up, empty the contents , then steam em clean for the next evening.

Posted by: cal2 at November 17, 2008 8:43 PM

All this sub-prime obama hocus pocus vaguely reminds me of the old Bre-X days...crooks cookin up something out of nothing and making lots of money knowing that the government will protect them and if not then you just jet off to the caymans and you're home free.

Posted by: kelly at November 17, 2008 9:04 PM

All this sub-prime obama hocus pocus vaguely reminds me of the old Bre-X days...crooks cookin up something out of nothing and making lots of money knowing that the government will protect them and if not then you just jet off to the caymans and you're home free.

Posted by: kelly at November 17, 2008 9:04 PM

Horny Toad at November 17, 2008 8:10 PM
Exactly. These are not poor people in the old sense of the word. There that way because they want to be. You sould see the spring or fall when they leave there nests. They scatter cloths all over like snakes shedding skin. Than get new cloths better than most can afford. The user abuser cycle just keeps on going. No matter how much you spend or give, they will spend it on their habits. Give them free needles but expect diabetics to pay for there own. Liberal logic at its best.

Posted by: Revnant Dream at November 17, 2008 10:09 PM

Revnant Dream

I live by a major waterway - in the summer, I go out every second weekend and pick up the detritus left by the homeless. A surprising amount is discarded clothing, as you mention. The remainder is related to cigarettes and food and food containers of various sorts.

Posted by: Erik Larsen at November 17, 2008 10:27 PM

Yes, Revnant is 100% correct, it is the homeless who caused the sub prime meltdown, since we all know that they are the ones who these programs were aimed at....


I agree that it doesn't make sense to give people with bad credit history a massive loan (mortgage) when they've been shown to be irresponsible in the past. However, I do believe the intended goal was to help people build equity rather than just throw away their money on rent all the time. If credit is cheap, it makes far more sense to be leasing to own rather than simply leasing something, especially in a market that consistently shows growth like the real estate market does.

I think the cases being mentioned here are pretty extreme...its not too hard to fall below a credit score of 600, and it doesn't mean you're a total idiot if you do. Sometimes a few bad choices or some screw ups when you're young is all it takes.

Posted by: barjebus at November 18, 2008 9:56 AM