CK:

1) Your understanding of subprime loans is deeply flawed. I recommend you spend time reading Tanta's posts on Calculated Risk -- she was in charge of loan risk control at a regional bank, and her posts were quoted in papers by the Fed.

A) Subprime loans ALWAYS existed. However, subprime loans were only there to be used by people who had originated at prime and had a life event [medical emergency/job loss] that meant they needed a refi at a higher rate.
B) CRA has zero to do with subprime. CRA loans are 100% prime.


2) "The government meddled in the financial market for social progress reasons instead of logic" : This statement is 100% wrong. The private market failed. The private market gave money to people who couldn't pay it back, and then BEGGED THE GOVERNMENT to prevent them from failing.

Nobody forced countrywide to give $800k loans to immigrant day laborers. Seriously, what about the following scenario is difficult to understand: Countrywide gave the loan to that day laborer because they had the law changed so they were no longer liable.. the Countrywide loan officers paid themselves a ridiculous bonus because they booked it as profit and sold the note within 30 days, before it was in default.. this was the definition of the private market scam, and had ZERO to do with the government.

CRA loans are better quality than everything given by the private market -- always have been, always will be. Median income combined with low home value is a good loan, not a bad loan. Seriously, you're simply objectively wrong on this. The point is that before the CRA, the people who receive CRA loans couldn't get loans because bank officers were racially discriminating against them. Look up red-lining as well before commenting on the CRA again, because the entire point of the CRA was to define how red-lining was no longer acceptable. Red-lining is deliberately, explicitly racist.

If you actually think "government intervened" in the market, do some research for yourself. Compare the numerical total of private market loan origination total dollar values between 2003 - 2007 to total CRA loans in the same time period - which, by the way, are 100% prime loans.

Incidentally, even CRA loans are formally originated by banks, not government.. because banks still receive the profits from those loans. To qualify for a CRA loan, a recipient must be a prime-rated credit in an area that the bank is taking deposits from. The only reason banks "complained" about the CRA is because they didn't want to do business with blackety-blacks. Unless, of course, using your original words: Is doing business with a black family with a prime credit rating "not using logic?" Despite what you hear on Fox, that's exactly the situation.

The government does not "inflate" the housing market -- Wall Street does that all by themselves because they skim profits from each sale.

And just to pre-empt one initial thought: Fannie and Freddie were under severe constraints at that time and could not be the customer for those loan originations from 02 onward.

I don't understand why people aren't more angry at the private market housing loan originators, because where do you think those notes ended up? Your pension fund, your 401k, your parents' trust fund, your teachers' retirement fund, etc. The vast majority of all non-prime paper from 03 on is worth zero because that $800k note from Countrywide didn't get paid off, it got defaulted and the money vanished because nobody could buy the house, it's sitting vacant in Arizona. Your payouts from your fund will suffer if your fund bought the note which included that house. Here's how: Funds report to you that they have a million bucks in "assets" -- but what if those assets are only actually worth $750k? That means when it comes time to sell that note with the Arizona house to get the cash for your next fund dispersement... it comes back no-bid, $0, and you get $0 instead of the money you paid into that fund.

But wall street is doing just fine -- they already paid themselves giant bonuses for scamming you, even if you don't know it yet.