Kroszner: "It's not the CRA."

"we found essentially no difference in the performance of subprime loans in Zip codes that were just below or just above the income threshold for the CRA."

I've seen quite a bit of writing in the blogosphere, pointing to the Community Reinvestment Act (CRA) as the, if not one of the, causes of our current financial crisis. Ridiculous as it may seem, some are very adamant about the impacts of the CRA. Fed Govenor Randall Kroszner, today, spoke on the results of a study by the fed to investigate those allegations.

The findings clearly show that the CRA could not have had a significant impact.

"First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken..."

Given the stories about lenders giving loans to whom ever they could without regard to standards, affirmed in my personal experience in mortgage origination, it's hard to see how anyone could blame a program like the CRA as been the root of the problem.

Our nation has been experiencing an economic decline since some time in 2002. We've shipped many of our jobs over seas to locations with lower, if non existent, labor and environmental quality practices. An expansion of credit made possible through accelerated regulatory liberalization in our financial industry masked a decline. We've now reached a point where the benefits of industry and production are exceeded by the levels of debt we've incurred.

This strong debt contraction is a necessary reaction to correct potentially 30 years of financial abuse. The idea that bailing out lending institutions so they can continue lending in the face of an already over leveraged economy makes little or no sense.

Given this idea, that we are facing the consequences of over-leveraging (or that we're just bankrupt) it seems impossible to point to something the size of the CRA, especially in light of the comparison of CRA eligible loans in default to non CRA loans, as the source of our current financial troubles.

[Kroszner's Speech]

The Shorts Are Comming

A different kind of short. (Hat tip Matt) As reported earlier tightening credit markets threaten to wreak havoc on on world trade. Bloomberg's Chan Sue Ling reports that Hong Kongs biggest try bulk carrier Pacific Basin Shipping Ltd. is having trouble moving it's shipments due to lack of credit availablility.

The Baltic Dry Index dropped 8.5 percent to 1,809 points yesterday, the lowest since August 2005. Pacific Basin dropped 6.5 percent to HK$4.75 in Hong Kong and Precious Shipping declined 5.5 percent to 12.1 baht in Bangkok.

Banks worldwide have curbed lending because of increased concerns about getting their money back. Shipowners are already struggling to obtain funding for new vessels. Precious Shipping took as long as 15 months to secure financing for 18 vessels it has on order, Hashim said.

Why is this important?

This is important because it could mean significant shortages of imported goods. Areas that rely on a significant amount of food imports could see strong price increases as supplies are depleted.

It will bring about a significant slow down in international trade. Goods traveling over-seas won't make it here, or anywhere. This will mean a reduction in the supply of available imports.

Retailers in this country could see this affecting their ability to provide products for sale during the holiday season.

As Matt pointed out to me the effects won't be noticed for some time, as things slow down and as it takes some time for the consumer at the end of the chain to notice a problem in a supply chain.

It could be weeks before we see a problem in our local supermarkets and stores if it comes to that.

I would assume eventually demand would go up enough that someone would work to finance the shipments, but in the meant time this could have many troubling effects.

The Headline Says it All

3-MONTH TREASURIES WILL NOW GET YOU $4 ON $10,000 PER YEAR

[Bespoke]

Pelosi Barks at Bush and Bailouts

"Is it a free market if you privatize the gain and nationalize the risk?"

“This is crony capitalism manifesting itself in the meltdown of our financial institutions,” Pelosi said, lamenting the fact that taxpayer dollars would now have to be used to fund the bailouts."

VIA The Crypt

I have to admit I'm a bit jaded. This seems like a great way to help Obama and the Democrats case.

I'd like to see some sort of mea culpa of various Dems, mostly Chris Dodd, as they pushed through and authorized at $300 Billion Bank Bailout bill.

What I also worry about is Congressional Stock positions. From Capital Eye:
According to the nonpartisan Center for Responsive Politics, nine lawmakers have between $785,900 and $1.8 million of their own money invested in Merrill Lynch...Fifty-four lawmakers ... held stock in the company in 2007, worth between $1.9 million and $5 Million.

Eight lawmakers owned stock in Lehman Brothers at the end of 2007, valued at between $102,170 and $184,160.

And Again...

Of all of the companies facing major transitions over the last week, lawmakers owned the most stock in AIG. Twenty-seven lawmakers owned stock in AIG last year, worth between $6.4 million and $20 million.

Then there's campaign contributions with AIG, Bank of America, Lehman, and Merill Lynch contributing over $40 million to both sides of the aisle.

I'm going to leave out Fannie Mae and Freddie Mac for now.

Letter to Congress: Stop The Bailouts

Dear Congress Member

I've been very close to the markets for some time now. I'm very aware of the things that are going down now. I am also aware of many of the potential consequences as some of these institutions like AIG, Bear Stearns and others fail.

I submit to you however that these institutions must fail. By propping up housing prices, and the markets, prudent investors like myself, and better, functional institutions, are being robbed of actual cash by the less cautious, and more reckless market players.

Keeping these failing institutions is hurting market transparency, creating greater moral hazard in the marketplace, preventing new functional institutions from reinvigorating the markets.

I am one that believes very much in market policing, and I believe just as with FEMA and Hurricane Katrina, the bush administration has stripped the markets of much of the effective enforcement that could have mitigated some of the disaster we're facing now. But now, the current government intervention amounts much more toward Corporate Welfare, and a corporate run government. These actions do not represent the best interests of the markets or the people.

These actions seek to prop up institutions that have proven they are failures.

Please prevent tax money from going to these institutions. There are much better ways to let this economy adjust.

Thank you for your time and consideration.

Paulson Gives Dodd the Finger

Via The Crypt

When Paulson announced he was planning on taking advantage of the new powers congress and the president allotted him in a recent Housing (bank bailout) bill and take into government control Fannie Mae and Freddie Mac, Senator Dodd, who introduced the bill was shocked, or at least he acted like he was.

He scheduled hearings on the bailout scheduled for today. The hearings were postponed today by Dodd. "At the Treasury Secretary’s request, I have postponed tomorrow’s hearing."

Of course Mr. Paulson must be busy dealing with everything that's going on the the markets with WAMU, AIG, Fannie, Freddie, and well every other major financial institution to look after right? No.

"It is regrettable that the Secretary has said he is too engaged in the current crisis to come before the Congress, yet is available to give speeches on the same day he was scheduled to testify," (a banking committee aide)

Apparently Paulson decided it was better to debrief the Brooking Institution today.