Banks and Their Buddies Learned Little to Nothing from the Great Recession

New Orleans     When we can muster up the attention span to read past the latest Mueller investigation activity and the Trump tantrums, we can see what Congress is doing to try to make life easier for the banks and gut Dodd-Frank requirements that force them to pay more attention in class rather than going the “greed is good” route.  It turns out that there is little relief in revisiting the lessons our old friends, the banks, have learned from their reckless behavior that led to the real estate bubble and the Great Recession only a long decade ago.

Of course, they certainly learned to be careful in dealing with the subprime lending market and its exorbitant and often predatory interest rates.  Wrong!  They only learned that they shouldn’t lend in their own names and through direct subsidiaries, but instead should supply nonbank middlemen with billions so that they can take the first fall when that bubble crashes.  The Wall Street Journal calculates that between 2010 and 2017, yes within 2 years of the meltdown and their repeated mea culpas to politicians and customers, they jumped in hard and collectively have made $345 billion in loans to such companies.  Many of these subprime loans are not in real estate, but in auto financing and similar areas that are even more unstable, if that’s possible.   Don’t for a minute think that this is just something the smaller fry are feeding on, because the big fish are goring on these loans.  Major bank loans to nonbank financial companies that loan money to subprime borrowers include Wells Fargo at $81.1 billion, Citigroup at $30.5 billion, Bank of America at $30.2 billion, JP Morgan Chase at $28.1 billion, Goldman Sachs at $22.2 billion and Morgan Stanley at $16.3 billion.

That’s not all that banks and their buddies haven’t learned.  On the wild right there are still pundits and posers who claim that loose credit standards, ACORN and the Community Reinvestment Act triggered the real estate meltdown and the recession, rather than their own activity.  Two researchers from the Urban Institute, which is the real estate industry and developers own think tank, in a working paper plainly state that the blame game is misplaced.

we … show that First-Time-Home-Buyers have similar loan performance as that of repeat buyers. This evidence indicates that the expansion of lending to include more marginal borrowers may not be the main cause of the financial crisis. Instead, the poor performance of the cash out refinances and refinances more generally, are more important contributing factors.

They put the shoe firmly on the foot of cash out refi’s that were popular for hordes of speculators and investors trying to take money out of properties as the bubble got bigger and then being caught short in their ability to pay as the market became overloaded and crashed.  In plain language speculators, big and small, with the help of bank’s emphasis on refinancing, were a much larger factor.

When banks won’t even admit to themselves what their role was in the crisis, how can they learn the lessons to avoid the next disaster?  Playing button-button on subprime loans and having their lobbyists dissemble in Congressional hallways about where the blame really lies are both signs of more meltdowns to come by the refusal to learn the lessons of the last one.

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Attack on Community Reinvestment Latest Battle in Republicans War on the Poor

Little Rock   A headline in the Wall Street Journal marked another salvo in the vicious war that the Republicans and the Trump administration has launched on low-and-moderate income and minority families across the country. This time it was not transferring tax subsidies to the rich or attempting to eviscerate their healthcare and kill them. This time they are trying to force them to be permanent renters or homeless in order to transfer more benefits back to banks by trying to further gut the Community Reinvestment Act of 1977.

CRA, as it is known, coupled with HMDA, the Home Mortgage Disclosure Act, has been the key tool for forty years in forcing banks to lend to lower income and minority neighborhoods. CRA was critical in ending the governmental sanctioning and encouragement of housing discrimination called redlining, which created zones where banks would not issue mortgages. And, it was – and is potentially about to be – even worse. For those with long memories part of the proof that drove CRA was the statistical evidence that there was a lending and deposit deficit and transfer between lower income communities and higher income ones. Excess money from banking customers’ deposits from low income communities enabled loans vastly in excess of deposits in higher income communities in the same urban area that financed sprawl and suburban development and created blight and abandonment in urban, lower income and minority communities. This was not just discrimination, but devastation triggered by banking disinvestment.

The Treasury Department and the Office of the Comptroller are preparing today to announce proposals to lighten the load on banks. Remember these are the same banks that created the credit deserts before CRA in 1977 and have now intensified desertification in these communities in the wake of their ineptness and reckless speculation that triggered the Great Recession in 2007. If there was any sense of irony in political philosophy and policy, this would be the case study, as Treasury now attempts to “reward” banks for not lending in lower income areas over the last decade, by making it easier for them to, yes, you got it, NOT lend in lower income areas.

They are masking this outright robbing from the poor and racism by hiding under the banner of there being burdensome regulations on the banks that cost “billions” in their words. Billions in banking is the equivalent of their bar bill for the trillions that they collectively handle, hoard, and sometimes lend. If any one needed more regulations, rather than less, it’s banks!

The details are still emerging but the headlines are another battle cry in the ongoing war on the poor.

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Please enjoy tUnE-yArDs’ Heart Attack.

Thanks to KABF.

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