Posted by Lambchop
Perhaps one of the most overused and clichéd quotes is this: the definition of insanity is to do the same thing over and over again expecting different results. I submit this should be the inspirational quote for the Democratic Party Platform since literally all of their failed social experiments and fiscal policies fall under this mantra.
From the Great Depression and New Deal forward, we know these policies attack stable markets and adversely impact economic growth. We also know that the huge impact of the housing crises clearly had a domino effect which caused the worst financial crises since the 1920s. In the mid 2000s, housing values inflated (many refer to this artificial inflation as a "bubble"). Loose credit requirements, failure to regulate derivatives and a host of other ridiculous liberal legislation pushing Fannie Mae and Freddie Mac to increase loans to dubious borrowers all contributed to the bursting of the bubble.
The result of the shoddy mortgage lending led to excessive packaging and sale of loans to investors. This in turn fueled the risky bets on securities backed by the loans which were shaky in the first place.
Although the information is not readily available, we know from insurance groups, the mortgage banking association and some private studies (like the Woodstock Institute) that, generally speaking, consumers living in minority communities were more likely to have non-prime credit scores, while individuals in mostly white neighborhoods were more likely to have prime credit scores.
The disparity is obvious when you look at populations by race and neighborhood: about 50-55% percent of the population in overwhelmingly-black neighborhoods had scores below 620 ( a common cut off for prime lending) while only about 14-17% percent in mostly-white neighborhoods had credit scores below 620.
Because these problems have not been addressed and only exacerbated by the high unemployment /underemployment rates, credit scores have continued to fall since 2008 – particularly in the minority community where consumers have been hit hard. Similarly, the market in many areas is still trying to absorb foreclosed and already devalued properties.
In spite of these truths, the liberal policies that contributed to this madness are back in full swing. Now banks are being regulated into making more risky home loans by CITY diversity police. Yes, at the CITY level.
New York and Los Angeles both have brilliantly decided to expand the “Community Reinvestment Act” and have approved laws requiring banks doing business to meet race-based quotas for mortgages. Both cities are set to adopt measures to stop foreclosures and vow to open new branches in urban neighborhoods. Imagine the impact of this artificial interference to the already strained housing values
Mayor Bloomberg, showing some predictive ability, is reportedly set to veto it (his city council can and will override his vote) while Los Angeles genius mayor, Antonio Villaraigosa is full speed ahead.
The unintended consequences of these idiotic ideology-ridden policies are that they effectively transform CITY authorities into bank regulators along with the federal government, adding yet another layer of enforcement. Imagine the paperwork, the bureaucracy, the cost of compliance to CONSUMERS required (not to mention the additional pressure tactics on banks to make these risky loans while being simultaneously punished for potentially not meeting whatever the minority requirements may be).
But don’t be fooled – these citified bank regs are coming to a city near you – Austin, TX, San Diego, CA, and Boston, MA and just a few of the cities preparing to put these regulations in place.
This is a recipe for disaster in the housing market.