Blame Bill? Blame blacks?

Although I have some issues with what Anglachel has written here (the "racism" canard is inane, and I've no interest in her dispute with the Confluence), I nevertheless encourage you to read her latest.

One of the things that has Anglachel bothered is the current attempt -- by folks on both the right and the left -- to blame the current mortgage mess on Bill Clinton, who salvaged and strengthened the Community Reinvestment Act of 1977. That act eased mortgaged requirements for minorities, who previously had been "redlined" out of home ownership. Thus was born a new mythology, which holds that the CRA caused the subprime mess.

This meme is pure post hoc, ergo propter hoc reasoning. Nevertheless, the "progressive" left likes this "CRA" meme because it gives them an excuse to bash Clinton, who remains their Number 1 enemy. (Remember what happened when I previously defended Clinton's legacy on this point? Democratic Underground forbade anyone from citing my piece because I am -- in prog-vision -- a "conservative.") Meanwhile, the right also likes this meme because they want people to blame the economic meltdown on a "free houses for blacks" giveaway program.

Anglachel:

The argument is little more than this: banks are being forced by Democrats to loan to blacks who are such bad credit risks that they are bringing the entire housing sector down. In California and other Southwest markets, it is the blacks and the “illegals” in tandem doing this. Why are Democrats going along? Because, the Republicans claim, they are captive to black (and other reviled groups’) interests and allow themselves to be used by the Congressional Black Caucus, the NAACP, the ACLU, ACORN, and any other group perceived, rightly or wrongly, to be minority dominated. When the accused organization in (I’m looking at you, ACORN) has a very questionable history, it gets easier to spread guilt by association. This is how Franklin Raines fits in – the (incompetent and undeserving) black CEO who ran Fannie Mae to enrich (undeserving) blacks and other low-life “sub-prime” flimflam artists.

Thus we end up with the leading lights of Left Blogistan solemnly agreeing that the president who fought tooth and nail to secure vital loans to help create long-term wealth in minority communities is nothing but a racist, another faction of the Democrats grabbing everything the Republican ratfuckers are shoving their way to tar the people, policies and plans that the Clintons have promoted and defended against rightwing attacks in some misguided belief that this will hurt Obama with voters instead of reinforce the Obamacan claims that the Clintons are just racists like their Bunker and Bubba supporters, while the Right merrily spreads the lie that Bill and the Democrats created the mortgage meltdown by setting up a scam for the undeserving minorities and poor to steal money and houses through the GSEs and CRA.

That last bit may be the longest sentence anyone has composed since the 1780s. But you get the point. Anglachel is scoring the progs for buying into anything that can be spun in an anti-Clinton fashion, yet she is also dissing the PUMAs for thoughtlessly buying into the right's anti-Obama talking points.

The enemy of your enemy is not necessarily your friend. Let's face it: This election has given us more strange bedfellows than you'll find in the porn studio hidden in back of the Mos Eisley cantina. I hope I've established, on this blog, my willingness to disagree with (some of) those who share my antipathy for the Glorious Lightbringer.

The CRA did not cause this crisis, as I tried to explain, in my own bumbling way, in a previous post. The CRA has little or nothing to do with most of the bad loans. The sub-primes were only the tip of the iceberg. Real wages have fallen since the Reagan "revolution," and making credit ever easier was the only way to give everyone the illusion of prosperity.

Forgive a touch of self-quotation:

I'd add that one hell of a lot of white people got subprime loans during the Insane Years. The CRA did not force Jeb Bush's Florida to hand out mortgage licenses to coke dealers, con artists and other crooks. And the CRA did not force the great financial houses to trade those bad home loans as though they were sure-to-pay-off assets.

This is from the official CRA guidelines:

"CRA activities should be undertaken in a safe and sound manner" (and)"avoid lending activities that may be abusive or otherwise unsuitable" (to) "provide small, unsecured consumer loans in a safe and sound manner (i.e., based on the borrower’s ability to repay) and with reasonable terms" (and) "consistent with safe and sound lending practices."

I encourage you to read this review of George Soros' new book The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Soros hopes to combat the Friedmanite belief that the market is a ever-benign organism which behaves according to the postulate of rational expectations. Soros proposes the counter-concept of reflexivity, which bears some similarity to the scientific adage that you cannot observe an experiment without affecting it.

Reviewer John Cassidy provides this illustration:

Imagine that ABC Corp. makes profits of $W per share, pays dividends of $X a share, and is growing at Y percent per annum. If you assume that this rate of earnings growth will persist indefinitely, it is a matter of high school arithmetic to figure out what ABC Corp.'s stock is worth on a fundamental basis, an amount I will call $Z. In the world of the Chicago economists, well-informed investors bid the price up to $Z and stop there. If prices rise above that level, they step in and sell; if prices fall below $Z, they buy. All is rational: all is efficient.

Now imagine that a group of irrationally exuberant investors come to believe that ABC Corp.'s growth rate is about to accelerate to 2Y percent, and, as a result, they bid up its stock up $2Z and keep it there for a while. What happens next? One possibility is that ABC Corp. could issue more of its highly rated shares and use them to purchase a rival, DEF Corp., whose stock price has been lagging—hence presenting a relative bargain. Thanks to the magic of acquisition accounting, the mere act of ABC Corp. buying DEF Corp. would make it appear that its earnings per share were growing rapidly. Voilà, the inflated earnings expectations that drove up ABC Corp.'s stock would have turned out to be justified. Most likely, the stock would rise even further—for a while, anyway.

Such mechanisms, I suspect, go a long way toward explaining why our economy has, in recent times, lurched from bubble to bubble. Bubbles are never rational. Back to Cassidy on Soros:

Turning to the current situation, he says that, in large part, the recent housing bubble in the United States fit the historic pattern, except that in this case reflexivity was centered on the real estate rather than the stock market. As house prices shot up between 2001 and 2005, credit standards deteriorated sharply. Rather than restricting their lending, mortgage financiers deluded themselves into believing that the collateral for the loans they were making would continue to rise in value. The very act of extending more and more credit, on easier and easier terms, kept demand for real estate buoyant, which, in turn, ensured that for several years the lenders' optimistic expectations were validated. It was only when borrowers who had taken out loans they couldn't afford started to default in large numbers that the housing bubble finally burst.

And that's it. Don't blame Bill, don't blame CRA, and don't blame black people. Blame the financiers and "experts" who, during the past eight years, operated under the dunderheaded delusion that house prices could go up exponentially while wages went up incrementally.

I remember an uncomfortable conversation I had with one lady who tried to talk me (yeesh...me!) into buying her home in 2003. "You'll make money. The prices will just keep going up and up and up!"

You want to know who caused our current mess? Every single idiot who thought like that.