It’s been 2 years now since wall street smashed our economy into a brick wall and like a lot of drunk drivers, amazingly the Banks walked away almost completely unscathed, while the rest of the passengers (us) have ended up in a 2 year coma from which we are just now emerging.
There’s been a lot of groping around for reasons why we hit the wall, with many people seeking desperately to find reasons other than drunk driving on the part of the bankers.
The fallback position of many conservatives has been their default one: Blame it on brown people!
There have been widespread conservative attacks on the Community Reinvestment Act, a bit of legislation passed in 1977 and reformed under Bill Clinton to allow access to credit for low income households so that they could buy homes.
The conservative logic has been: The government forced banks to lend money to people who couldn’t pay it back. Of course there was going to be a crises.
Which is complete hosreshit. This has been largely discredited by anyone actually wanting to look at real numbers. Anyone bothering to look up default rates on subprime mortgages vs. prime could easily give lie to these cynical accusations. But I wanted to throw out a little more data for anyone who cared.
And more recently:
ARMs drove the crisis, not subprimes. Turns out that people with good credit who arrange to have no equity in their homes are at higher risk to default.
A recent harvard study(PDF Link) also found that Alt A ARM loans were the biggest contributor to the failure of these bank owned CDOs. Alt As used to be about low credit scores, but during the boom, became synonymous with low documentation or no documentation loans, or liar loans as some people called them. These were used to buy bigger houses than people could afford, or by housing flippers to make short term profits with minimum payments.
Of course, this is only one part of the crash but I’d do my best to dispell the bullshit about what kinds of lending made mortgage backed assets toxic.