Later On

I have exchanged emails with a conservative friend on the cause of the subprime crisis, which was what toppled the financial industry (bad loans plus credit default swaps). He somehow thinks the cause was the Community Reinvestment Act along with Fannie Mae and Freddie Mac. I have tried to show him that the agents of the crisis were completely in the private sector and had nothing to do with government programs—except the government’s refusal to regulate the subprime market. He doesn’t understand, but I got this from the Center for American Progress this morning:

The Center for Public Integrity (CPI) released an extensive report yesterday detailing how Wall Street firms fueled the subprime lending that helped create the current economic crisis. CPI reported that "at least 21 of the top 25 subprime lenders were financed by banks that received bailout money — through direct ownership, credit agreements, or huge purchases of loans for securitization." More importantly, CPI wrote, "increasingly, lenders were selling their loans to Wall Street, so they wouldn’t be left holding the deed in the event of a foreclosure. In a financial version of hot potato, they could make bad loans and just pass them along." The Wonk Room’s Pat Garofalo noted that the Wall Street firms would in turn "sell the loans to institutional investors, and use the money raised to buy more subprime loans, in a vicious cycle of buying, selling, and lending." This report paints quite a different picture than the one conservatives were trying to sell last fall, when they repeatedly claimed that the mortgage crisis was the fault of banks lending to minorities. As Fox News’s Neil Cavuto said at the time, "loaning to minorities and risky folks is a disaster."