Thursday, September 18, 2008

A Failed Philosophy
This country can’t afford another four years of this failed philosophy
Says Barack Obama. Indeed, I agree with Barack Obama. And after examining his record it is clear he must not be elected President if we are to have a chance of changing the system that contributed to the housing crisis.

To understand the contributing aspect to this problem, it is necessary to investigate how Obama has been a participant in various aspects of the operating philosophy that participated in the housing meltdown. To begin with, Obama heralds his credentials as a former community organizer. Since this term is largely nebulous and he has not done much to explain in detail his activities or provide a clear definition of this title it is important for us to define it.

Community Organizer: One who facilitates a connection between activist interest groups and public/private pools of cash

Obama has made vague references to his days as a community organizer, referring to moments working with churches or in particular some incident about helping people deal with the closing of a southside Chicago steel mill. What he tends to not mention much is the work he has done with the activist urban mobilization organization ACORN. Among its many community organizing activities, ACORN offers through the ACORN Housing Corporation, first time homeowner mortgage counseling and foreclosure prevention assistance, and low income housing development.

ACORN is not an organization free from controversy. ACORN members have been indicted and convicted of fraudulent voter registration in Missouri, Wisconsin, Colorado, and other states. Obama has provided legal defense work for ACORN Illinois chapter and counts on ACORN organization for voter mobilization. One main activity of ACORN's is in channeling mortgage lending funds to its low income constituents. As is detailed in this fascinating and indispensable article, ACORN and other community activist groups secured billions of dollars in loans for their marginal credit constituents. The main contributing aspect that directed this money to community activist groups had to do with the stepped up enforcement, under the Clinton administration, of a banking law called the Community Reinvestment Act. This law graded and scored the urban and low-income lending practices of various banks - how well they provided mortgages to marginal clients in urban and redeveloping neighborhoods.
the Clinton Treasury Department's 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A's for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods?
The effect of this stepped up enforcement of the CRA encouraged community activist groups, such as ACORN, to swarm mortgage lending banks with inquiries and challenges measured under the CRA. With mortgage lending banks at the mercy of federal backed mortgage entities Freddie Mac and Fannie Mae, a poor rating under CRA could potential shut off the spigot to federal mortgage guarantees and repurchasing. Banks became increasingly beholden to the lending demands of community activist interest groups and their lending approvals to marginal clients increased dramatically - lest the bank risk receiving a poor CRA rating under the new Clinton era enforcement regime.

Obama's links to ACORN cast much needed light on what Obama's "community organizing" entailed. However, this is not his only potential link to the present housing crisis. As Obama's own dubious fact check shows, Obama has been heavily involved in public and quasi public housing matters in the Chicago regions throughout various stages of his career. One particular aspect not given much press is over Obama's linkages to public-private partnerships tasked with low income housing development in Chicago. A senior member of Obama's presidential campaign Valerie Jarrett, as well as his long-time financier (and convicted felon) Tony Rezco, and other major contributors to Obama's campaigns were involved in using government subsidies for low-income housing developments throughout Chicago. Some of these projects were built to sub-standard conditions and many units now are in violation of city code, including some units that have been condemned. What this indicates is that up the chain, Obama has aligned himself with groups involved in enlarging the constituency of marginal and risky mortgage holders through an increased access to government backed loans. Additional to this, Obama has also aligned himself with individuals and groups (including providing legal representation) taking government funds to subsidize the construction of low-income urban housing developments. As has been shown, Obama's ties to the housing issue are more than minimal.

But it goes further. The resignation of James Johnson from Obama's vice presidential candidate advisory committee proved to be a minor embarrassment for Obama earlier this summer. James Johnson, before serving on Obama's staff, was the CEO of Fannie Mae. Now in the light of the government bailout of Fannie Mae and Freddie Mac, Obama's ties to the quasi-government mortgage backer must be re-examined. During Obama's short time as US Senator, he has managed to collect the second largest total of campaign contributions from Fannie Mae and Freddie Mac's employees and Political Action Committee. Even more illuminating are the grants awarded by Fannie Mae to Illinois community activist groups including ACORN.

From the bottom of the food chain to the top, Obama has closely associated himself with the activist pressure groups who have strained the nation's government-backed mortgage lending financial system through an abuse of the CRA. Furthermore, political friends and allies receive favorably subsidy from government grants in pursuit of public/private development projects in urban areas. And at the top Obama has cultivated relationships with the very senior officials who oversee the entire mortgage lending financial system. While I do not suggest that Obama caused the mortgage meltdown, what I do highlight is Obama's advocacy for a system that is presently in place and that has precipitated in no small measure to the mortgage financial collapse. Obama speaks of changing the system that caused this but he has shown to be very active in support of the system that caused this - in support of the grassroots community organizations that added billions in risky mortgage holdings to the financial roles; in support of housing developers who trawl for public cash in building out housing units that await dwellers with risky finances, and has cultivated deep ties with the very heights of the system that guarantee it all and awash it with cash.

Isn't it worth your time to tear yourself away from Palin's hacked email for one minute and devote just a few seconds to examining the record and actions of Barack Obama? Does he really represent change? Or is it more clear that what he will bring to Washington is ever more government. A government built on a system of wealth transfer to activist interest groups and other mobilized entities. Is this a system we really want to enhance any further? Since Obama knows nothing else but a system based on the nexus of cash handouts to the politically mobilized, it suggests that what Obama will bring to Washington, if elected, is more of the same rotten same.

Again, I repeat Community Organizer: One who facilitates a connection between activist interest groups and public/private pools of cash
We do not need to elect a Community Organizer in Chief. I cannot think of anything more disastrous at this time in our history.


At 7:18 PM, Anonymous media kingdom said...

it's hard to object to the government's mass bailouts since similar debt-producing methods were put into action to bring the U.S. out of the Depression; maybe we're really socialists at heart and don't want to admit it

At 9:57 PM, Blogger Brian said...

Interesting analysis... I look forward to your analysis where you talk about John McCain’s buddy/chief economic advisor Phil "Too Big to Fail" Gramm and how both his “Gramm-Leach-Bliley Act” and “Commodity Futures Modernization Act” helped take away transparency of financial firms and created the Credit Default Swaps market that is behind the Wall Street shit storm we are in:

Now there’s a candidate that has some friends that we can look forward to from hearing from later if he become President.

McCain, for deregulation, then when the sky is falling, finds “religion”:

Who needs socialized heath care when we have socialized capitalism? ;)

At 10:09 PM, Blogger Granite said...

Sad, but true. In time we will speak of Franklin D. Roosevelt, Lyndon B. Johnson, and George W. Bush as the Presidents who did most to extend the apprataus of state socialism in this country. His prescription drug entitlement, No Child Left Behind government education expansion, and nationalization of sectors of our private financial system have dramatically increased government reach. But then again none of this should come as a surprise. Bush loudly proclaimed back in 2000 that as President he would pursue big government. It was based on this admission that I did not vote for Bush in 2000 nor in 2004. The most laughable and sad aspect is that aside from stylistic differences, Obama will lend more to a Bush third term than McCain. Bush believed in the power of government to affect public policy. Obama believes in the same - just to a much higher degree. When its a choice between socialism and socialism, socialism always wins.

At 10:33 PM, Blogger Granite said...

Thanks Brian. Here's my analysis. Regarding Gramm-Leach-Bliley Act, of the House-Senate compromise bill that came out of conference for a vote to send to President Clinton for his signature, Democrat Senator Joe Biden voted for the bill and John McCain did not. Since Obama was not in the Senate at the time, and to perhaps suggest how Obama would have voted (you can decide if I am fair or unfair on this point) I'll use as proxy his Senate mentor and colleague Illinois Senator Democrat Dick Durbin who also voted for the bill. And for the record Senate Majority Leader Democrat Harry Reid also voted in the affirmative. You can see the votes here.

If this Act as law is indeed the source of the shitstorm, then the record clearly shows McCain did not vote for the Act, but Democrat Vice Presidential candidate Joseph Biden did vote for this Act.

Will you hold Joe Biden accountable for his part in creating this shitstorm we suffer and deprive him and his running mate your vote this coming November?

At 10:31 AM, Blogger Brian said...

You sure it wasn't:

(haha... no wonder nothing gets done in DC, all these numbers are confusing)

Fascinating stuff though... follow the path to "Commodity Futures Modernization Act of 2000":

From just poking around the Net the past couple of days it looks like "Gramm-Leach-Bliley Act" gave us the "mega" financial institutions where banks merged with brokerages who then merged with insurance companies... the setup. Then "Commodity Futures Modernization Act of 2000" led us this crazy CDS mess we have today.

Yes Democrats are not innocent in this, but if I understood correctly, your point was to put a spotlight on the "crowd" Obama has been know to hang out with.

I'm just pointing out in my travels on trying to figure out what the hell happened this week, one name keeps popping up: Phil Gramm, who is part of McCain's "crowd", who looks to be a key adviser I might add (and some say could be the Secretary of the Treasure in a McCain administration).

McCain has openly omitted that he' not an "economics" guy, hey neither am I, but if Phil Gramm is his "go to guy", that worries me a little more.

On a personal note, I just wanted to say thanks, in the process of try to give you the comments you craved (that hopefully were a bit above "Oh yeah, well he's a doodiehead") you've gotten me more involved in the process than I have been in the past, it is pretty enlightening... although I don't know how you do it, everyday is like drinking from a fire hose.

At 11:17 AM, Blogger Granite said...

hahaha. Yeah, if you check the dates when the two votes were held, you'll see that vote for the bill you linked happened earlier than the vote I linked to. What happened was the vote you linked to was the original vote to send the bill out of the Senate. The bill passed along largely party lines. Then a House version of the bill passed the house. The two bills went to conference to forge a consensus bill. It was the second vote that was to pass the consensus bill. Notice how since more Democrats voted yes to the compromise bill it stands to reason that the bill that became law was revised to be more favorable to democrats and their requirements. This is what became law when President Clinton signed it.

Thanks for the tipoff to the Commodity Futures Modernization Act. Let me look into it and get back to you. I appreciate this back and forth. Good stuff.

Also, its a fair point you bring up about the "crowds" each candidate elbows up to. You give me more to address in a separate post perhaps. All I'm going to say about Phil Gramm is he's a former democrat and economics professor who became a rupublican around the time of the Reagan 80's. Maybe a little before. He's part of a movement away from the Left that happened for some during that time. It may be worth addressing separately since you point to the importance of this.

I am trying to get at a larger point though re: Obama. My view is that I don't believe most of his supporters really know the guy. They're caught up in the imagery of Obama but not a lot of substance (maybe except for single issues like abortion. Just his being for the right may be enough for some people and they really don't care for whatever rest he stands for. Its enough for them. I understand that motivation). What I am trying to do is illuminate to a larger point - the larger philosophies that guide Obama. I think if people knew how his roots are planted in more radical soil than perhaps others on the Left - such as Hillary - then maybe he wouldn't have gone so far. There again, I think there's a lot of the Left that likes having one foot in the radical thing. That's another point to address separately. Personally, I think the Dems would be running away with this election if Hillary was the nominee. But that's history now. Why the Dems chose Obama is the point for another time. Who knows, he may still win. But I wouldn't count out the silent majority yet.

Thanks man. Glad to hear you're having fun. This is a great election. More people think they're voting for someone than just simply choosing between the lesser of two evils. That I believe is a good development.

At 10:19 PM, Blogger Granite said...

Not sure how much or how little the Commodities Futures Modernization Act had here. Most of the stuff online reports innocuous detail. I saw this article which was a bit explanatory. Not sure how reliable a source wisegeek is however.

Something to point out regarding all of this. Growth in information technology, statistical analysis, and simply customers and markets necessitated the growth in financial products offered to the public. When our politicians demand that the public good that is home ownership be expanded to more people (employing the CRA to lean on the banks and tasking Freddie and Fannie to wash it with cash) the financial industry created the products tailored for these customers - certainly for those who weren't ready to plunk down the traditional 20% downpayment. Hello PMI anyone??

Anyways, expansion of products and a diversified clientele tend to pressure for a systematic revision, update, "modernization" or what have you. The economy of 2008 is not the economy of 1930 and it would be a fault to think that depression era banking rules need never be changed. Phil Gramm as scapegoat just doesn't measure up. Here's an article from Investors Business Daily on why its unwise to be pointing fingers at Phil Gramm

Here's also a critique of the GLB blame game with some links to other places. I don't weigh in one way or the other. I just point to this for reference and further exploration.

This conversation is leading me to ideas I'll bring up here. (PS: I'd love to get JackDied's take on all of this. Feel free to weigh in iff you're reading this). Atop our private financial system is a public overseer - including the Fed and the Treasury. This makes the system not entirely private. In essence the US Gov has become the bank of last resort and the recent bailouts have confirmed that. This is the legacy of FDR. Banks largely sank or swam before. Now they get bailed out. Regulation doesn't necessarily mute risk. All it does is shift the responsibility of ultimate risk taker to the federal government. A bank operating in a less regulated environment may not necessarily more or less inclined to take on additional risk since the consequences of such can lead to the bank getting absolutely punished if a situation arises where risk cashes in. Therefore, the prospect of such (and fear of such) can have a chilling effect on assuming too much risk to begin with. In essence Adam Smith's Invisible Hand. Such a system doesn't mean crises based on risk will not occur. Humans and risk are synonomous. This will never change But this is to highlight that unregulated or minimally regulated systems will contain within them their own checks as humans assess risk and decide their actions accordingly.

A regulated system adds distortions as it regulates. The semblance of "safety" in a regulated system coincidentally alters the assessment of risk. The regulating entity becomes partner to the risk taking or risk avoidance of those institutions it regulates. With the government sitting atop a private system it's presence effects the system. Who knows what the banks would have done had they known the government would not be there to bail them out. I think some instiutions knew beforehand a bailout was always a possibility. Hence, this assumption may have influenced risk taking. (Not to mention risk taking was essentially mandated by the government in its pursuit to increase home ownership with financially riskier low-income / no-income clients).

It must be said that we'd very likely not be having this conversation had so many people defaulted on their mortgages. While its a fun exercise to talk about Gramm-Leach-Bliley, the source of the crisis began with thousands of people with marginal income taking on adjustable-rate mortagages to buy homes whose value fluctuated according to localized market conditions. Accordingly, to truly understand the problem our attention must remain on what actions led to the financial system taking on the additional risk that led to its downfall. It is to that point my original post addressed.

At 2:21 PM, Blogger Brian said...

I agree, you can’t point GLB as the single cause of the meltdown, but it did set the stage:

“Now make sure you have a wall in place.” “[snicker] We will.” ;)

(I also like the argument that if we didn’t have these mega banks, who would buy the collapsing mega banks… missing the point how mega banks came to be, but I digress)

Back to CMF and Gramm:

I don’t normally like to point to blogs, but this guy makes a interesting point:

Again, is Gramm the super evil villain in all this? No, but he’s got some explaining to do.

On your idea that government regulation inherently gives Wall Street the feeling that, how ever risky they get, the government will have their backs.

I think one thing we have seen time and time again is Wall Street likes to make money and will come up with quite “creative” ways to do it. After all, you don’t make shareholders happy when you play it safe and make the same profit as your competition.

And you can say, we won’t have you backs, you are on you’re own, but if their risks are big enough to still affect the economy, we’re back to bailing them out again to keep “main street” from crashing too. But I guess you can then make the argument that government shouldn’t be in the business of protecting “main street” either, and maybe that is what you mean by entitlements.

Over regulation and under regulation are both bad but I still think it is in the best interest of tax payers to limit the “creativity” of Wall Street.

But back to your original point, yes I agree that it is wrong that these organizations put people in homes they couldn't afford. But the tone of the article you linked to makes it sound like the “poor banks” were “helpless” in the whole thing when we know that the Countrywides of the world were equally aggressive in getting sub prime mortgages on their books to sell… to sell for awhile at a profit in an “1% interest rate” environment under the control of a Republican influenced Fed I might add ;)

Personally I blame all those TLC shows that got people thinking they could get rich flipping houses ;)

At 2:45 PM, Blogger Brian said...

I forgot to add...

"But I wouldn't count out the silent majority yet"

Some might call me a pessimist but I have a feeling it is going to be another close one, and you maybe right.


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