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Thursday, April 29, 2010

The Center for Responsible Lending Conspiracy

The conservatives are working themselves up in a lather and they've found their latest whipping boy for the mortgage crisis. It's the Center for Responsible Lending. This particular whipping boy hits several erogenous zones. First, the CRL was tied into John Paulson, who's been recently disgraced by the Goldman Sachs scandal. Second, a major player at CRL is now in the Obama Treasury Department, Eric Stein. Overall, it fits the narrative that misguided policies from groups like this pressured banks into making bad loans.

The Center for Responsible Lending presents itself as a tireless advocate of poor and downtrodden borrowers facing a credit industry of greedy banks, payday lenders and other financial predators. Yet a review of CRL’s advocacy paints a different picture of the organization. It is intimately tied to some of the worst actors in the lending business and its advocacy has too often hurt, not helped, the very people it claims to defend.

The California financiers Herbert and Marion Sandler must have had a rude shock when they saw themselves depicted in an October 2008 comedy routine on “Saturday Night Live,” the popular late night television show also known as “SNL.”

Presented as a mock C-SPAN broadcast, the sketch brutally parodied the politicians who orchestrated the bailout legislation that fall.

I'm always amused by narratives like this. First, it was the Community Reinvestment Act. Then, it was ACORN. Now, it's the Center for Responsible Lending. If all these groups were responsible for the mortgage crisis, they did it an Orwellian fashion. Tha t's because no one had heard of them when the mortgage boom was happening. Somehow, they puppeteered the complicated mortgage market that include brokers, banks, securitizers, as well as fancy products like Mortgage Backed Securities and Collateralized Debt Obligations. They did it all without anyone noticing.

I don't know why it's so hard for people to believe that the Federal Reserve was chief in responsibility. After all, what has more influence: the group that effectively controls the supply of money in the world or some obscure group no one has heard of. Yet, Conservatives jump over themselves to blame the obscure left wing group of the hour for creating the crisis, and most never mention the Fed.

The whole thing is totally without logic, and by that I mean, the logic created by conservatives. Conservatives will tell you that there's too cozy a relationship between banks and D.C. Well, if that's the case how did some obscure group force these banks into doing bad loans they didn't want to do?

The much more likely scenario was that no one forced the banks, Fannie/Freddie, and all other Wall Street titans into doing anything they didn't want to do on any significant scale. The Community Reinvestment Act accounted for 3% of all mortgages at its height. It was never more than 3%. Yet, this obscure government program forced the banks to give anyone a loan with a heart this really what conservatives would have us believe.

The Community Reinvestment Act only applied to retail banks not wholesale using mortgage brokers. (the same for CRL) Are conservatives saying that small community banks are responsible for the crisis...because that's who the CRA applied to. The Chase's, WAMUs and Countrywide reiled on mortgage brokers mostly and those loans had nothing to do with CRA. It had nothing to do with the Center for Responsible Lending. The exotic loans we now call "toxic assets" were all a creation of wholesale mortgages. Wholesale sub prime lending just happened to explode less than a year after the Fed lowered its Fed Funds Rate below 1%. Are conservatives really saying this is mere coincidence and all these obscure groups were pulling the strings on people while no one noticed?

Here's my full summary of the crisis.

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