Reading Response 1 / Mauricio Berrizbeitia

The US Senate subcommittee report states that the financial crisis of 2008 was caused by the four interconnected factors of:

  • banks lending high-risk mortgage loans to increase their profits.
  • The failure of the OTS to regulate banks under its supervision and to impede other agencies from doing so.
  • inflation of credit ratings for high-risk mortgage-backed financial products by rating agencies.
  • Investment banks selling these financial products without disclosing their high risk to buyers with the intent of benefitting from their loss.

The second article states that the financial crisis was caused by high-risk, predatory loaning and lack of government regulation.

It seems to me both documents are fairly aligned in their thesis, focusing on high-risk lending and wide ranging industry malpractice as the primary source of the crash.

However, where the committee acknowledges a government’s agency failure to do its job, the Center for American Progress defends the “record of success” of other government agencies and acts, while quickly shoehorning those agencies adopted the same practices as Wall Street near the end of its report. It also claims that 36 percent of subprime mortgages originated from the CRA as if that were a low number. Thirty six percent is over one third of all subprime mortgage loans. While the private market lent more than the government, I highly doubt any one private company was solely responsible for more than a third of all subprime loans.

The latter document seems to me as clear propaganda designed to generate headlines for the 2018 mid-term elections. It consistently references “conservative attacks” while never referencing or quoting said convervatives, only adding footnotes no one will read. This kind of divisive rhetoric is appalling and shameful in my honest opinion.

I’m linking an interactive visualization about the economic and political ramifications of automation. In contrast to the financial crisis which was caused by human greed, automation will be caused by scientific progress and productivity. What’s really interesting is that this piece brings different “chapters” together to tell a whole story such as:

  • the likelihood of certain jobs being replaced
  • voter’s tendencies

This is very similar to our touchpoints such as the Dispossession of Wealth and Race & Re-Segregation among others.

https://pudding.cool/2017/07/jobs/

–Revisions–

Because I couldn’t stop thinking about this, I decided to read some of the footnotes I think no one will read. Part of what makes this issue so complicated is that people are still arguing of when high-risk loans began to proliferate.

Some of the conservative critics the CAP is referencing include the GOP party platform of 2016, the Heritage Foundation and the American Enterprise Institute. The basis of their argument is that the Housing and Community Development Act of 1992 encouraged GSE’s such as Fannie and Freddie towards higher and higher quotas of subprime loans.

The CAP explains that the goal of this legislation was to make affordable housing more accessible to low-income Americans, which traditional loan services might not (or did not) cover because they represented a higher risk. This gets into another discussion which is  the role of government in society, which I will not get into.

After reading the 2016 GOP platform, it is clear why the CAP might imply these criticisms are racist. It essentially states that local banks and financial services are better suited to determine who they can loan to than a one-size fits all government mandate. This leaves the door open to the people running those financials institutions to deny loans to people simply because of their background and keep them away from a community.

The AEI offers a much more sophisticated argument against government regulation, one that relies on economics rather than race and thus doesn’t feel icky. Because GSE’s are tax-funded, they have a funding advantage over the private sector and thus they can under-price the competition and gain so much market share they become a monopoly.

Essentially, what this is implying is that the only way for the private sector (banks and Wall Street) to compete with GSE’s is to engage in reckless high-risk loans. Thus it now seems to me that the root of the Crisis was the competition between the government and the private sector.

It is pretty clear that my original response was very emotional and hopefully this revision addresses some of my blindspots.