Larry Kudlow Blames Liberals in Congress for Mortgage Crisis

Here’s what he told Joe Scarborough:

Kudlow: It’s time for the Congress, Republicans and Democrats to stop encouraging—exhorting and forcing banks to make low income loans with no documentation. Stop that—literally pushed these lenders to make low income loans

Scarborough: Hold on a second. You cannot blame this on low income people that are getting a house.

Kudlow: I’m not blaming them. Kudlow: Sub prime, sub standard loans were a creature of the US Congress in the 90’s and the 2000’s.

Scarborough: Are you saying that poor people have caused this crisis?

Kudlow: Not poor people. Members of Congress who were rich people. But their Liberal guilt consciences forced banks and lenders to make lousy sub-standard loans and that has to be repealed…not everybody can afford a home, Joe. Some people have to rent.”

For those who don’t know what Kudlow is referring to (as I didn’t), it’s the Community Reinvestment Act of 1977. (It was revised in 1995 and again in 2005.) And it does not “force banks and lenders to make lousy sub-standard loans” to people who can’t afford them. Here is what it does (emphasis mine):

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. …

The CRA requires that each depository institution’s record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution’s application for deposit facilities.

Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution’s individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution’s CRA activities should be undertaken in a safe and sound manner.

Here is another description of the Act’s purpose, from PolicyLink:

The Community Reinvestment Act (CRA) was established by Congress in 1977. The Act requires that deposit-taking financial institutions offer equal access to lending, investment and services to all those in an institution’s geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.

Before the CRA, many bankers excluded low-income neighborhoods and people of color from their lending products, investments, and financial services – a practice known as “redlining”. Community activists coined the term when they discovered that the failure of banks to make loans in some low-income neighborhoods was so geographically distinct, that it was easy to draw red lines on maps to delineate the practices.

In the 1970s, activists in Chicago and across the country brought strong pressure on banks to lend equitably to all those in their communities. Since its passage, the CRA has been used across the United States to win tens of billions of dollars in new lending, investments, and services for communities. The National Community Reinvestment Coalition tracks more than $1 trillion dollars in community reinvestment pledges nationally. These pledges are explicit investments in equitable development goals, and finance many tools in this toolkit.

Perrspectives (h/t Crooks and Liars) does more debunking (ital is in original):

Unsurprisingly, the reliably Republican Kudlow faithfully regurgitated every GOP talking point in laying the Wall Street’s woes at the door of the DNC:

“Are the Denver Dems downing the stock market today? The Dow is off 230 points, starting right from the get-go. So-called market analysts are blaming financials and the credit crunch as they always do. But there’s more. Obama and Biden gave us plenty of class warfare in their Springfield, Ill., get together on Saturday. Tax the rich. Redistribute income and wealth. Go after all those corporate meanies. Trade protection…

…With the Denver Dems strutting their stuff, this could be a bumpy week for stocks. Did anyone say free-market capitalism is the best path to prosperity?”

Of course, as the record shows, the best path to prosperity is to elect Democratic presidents.

The superior performance of Democratic presidents covers virtually the entire spectrum of economic indicators. As Elliott Parker of the University of Nevada, Reno detailed in a 2006 paper, since 1949 Democratic administrations have done better than Republican ones when it comes to unemployment (5.2% to 6.0%), job creation (-.0.4% decrease in unemployment, compared to 0.3% increase), GDP growth rate (4.2% to 2.9%), and even corporate profits as a share of GDP. And to be sure, he found the Dow benefits from Democrats in the White House.

There’s no shortage of studies to show that stock market returns are higher under Democratic leadership. (As it turns out, Wall Street’s performance is also better when Democrats control Congress.) In 2000, Pedro Santa-Clara and Rossen Valkanov of UCLA’s Anderson School of Business concluded that “that the average excess return in the stock market is higher under Democratic than Republican presidents – a difference of 9 percent per year for the value-weighted portfolio and 16 percent for the equal-weighted portfolio.” As the New York Times noted of UCLA study in 2003:

“It’s not even close. The stock market does far better under Democrats… …Professors Santa-Clara and Valkanov look at the excess market return – the difference between a broad index of stock prices (basically the Standard & Poor’s 500-stock index) and the three-month Treasury bill rate – between 1927 and 1998. The excess return measures how attractive stock investments are compared with completely safe investments like short-term T-bills.

Using this measure, they find that during those 72 years the stock market returned about 11 percent more a year under Democratic presidents and 2 percent more under Republicans – a striking difference.”

The real villains behind the subprime mortgage crisis, and the larger home foreclosure catastrophe that grew out of it, are predatory lending practices, made possible of course by deregulation (which John McCain fully supported, despite his proclamations now about the evils of deregulation). Another nail in conservatism’s coffin, writes John Amato:

This is another case that proves conservatism is dead. Of course not everybody can afford a home. Sorry, the irresponsible lending practices went on because it kept Bush’s economy chugging along for years before it crashed and burned. The ownership society Bush and conservatives called it. Morning Joe actually takes him apart for even suggesting that low income families are the root cause of our economic problems in the housing market. It’s up to the lenders to qualify people for loans. PERIOD.

I watched this crisis unfold and saw people walking into fairly expensive homes in Venice, CA with no down payments and either low or no interest loans. Yes, I’m a renter now. I couldn’t believe my eyes when the property values skyrocketed (went up to 1 million) because of these lending practices. People can apply for a loan all they want, but that does not automatically mean they should be approved. That’s up to the lenders. Liberal guilt is never an issue and a lie, Mr Kudlow. They aren’t supposed to hand over thousands of dollars without knowing that they will be paid back. The predatory lenders made boat loads of cash at will with a conservative philosophy in hand.

12 Responses to “Larry Kudlow Blames Liberals in Congress for Mortgage Crisis”

  1. rawdawg says:

    kudlow aint dead yet – them big as tie knots gone do him in

  2. Don’t you know anything? EVERYTHING bad that ever happens is the fault of Liberals. Everything. 9/11? Liberals. Mortgage crisis? Liberals. Health care crisis? Liberals. Sarah Palin’s pregnant teenage daughter? Liberals. AIDS? Liberals.

    EVERYTHING is our fault.

  3. Sillie Lizzie says:

    Is there no end to how much Kool Aid you liberal socialist morons are willing to drink? Pretty soon you’ll be taking it intravenously and by suppository.

    EVERYTHING that is wrong with this country CAN be traced to liberal ideological sedition. EVERYTHING. Socially, morally, economically and politically.

    Liberals have turned the justification of EVIL into an art form.
    “Woe to those who call evil good, and good evil!!”

  4. Sillie Lizzie said, “EVERYTHING that is wrong with this country CAN be traced to liberal ideological sedition. EVERYTHING. Socially, morally, economically and politically.”

    Ok, lets make it a game. I’ll name a problem, and you explain how liberals are to blame for it. Ready?

    Termites.

    GO!

    And please, show your work.

  5. lulz @ MO.

    Seriously, I just wanted to step in for a sec and say something; I typically don’t particpate in the comments section. I just felt the need to say that I am a liberal, yet I am hardly a socialist. Why does everyone keep assuming I’m a socialist?

    *sigh*

  6. In all fairness to Lizzie…I actually kind of am a social democrat, which is a moderate form of socialism.

    …and also, I will concede to being the source of every problem in America.

    Mea culpa.

  7. Kathy says:

    Kyle, didn’t you know that liberal is a synonym for socialist?

    Since Master Obsidious has been so brave to go first, I will not leave him twisting in the wind, there: I am a social democrat, too.

  8. Nope, I’m totally a greedy capitalist pig. I just recognize that my capitalist greed can, if allowed to go totally unchecked, cause some minor problems, you know, like the complete and total implosion of Wall Street.

  9. J. Bartlett says:

    An article from 2000 the fully predicts and explains the current crisis:

    “The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities”

    http://www.city-journal.org/html/10_1_the_trillion_dollar.html

  10. Kathy says:

    Nope, I’m totally a greedy capitalist pig. I just recognize that my capitalist greed can, if allowed to go totally unchecked, cause some minor problems, you know, like the complete and total implosion of Wall Street.

    Kyle, that totally works for me (your capitalist greed balanced with a sense of social and economic responsibility, that is!).

  11. Michael Pugliese says:

    Re: Gramm-Leach-Bliley Financial Services Modernization Act of 1999,
    http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act which destroyed the New Deal era Glass-Steagal Act regulating big banking/finance capitalist practices,
    see
    http://www.dissentmagazine.org/article/?article=1229

    Summer 2008 »

    The Legacy of the Clinton Bubble

    I would note that moderate Republican, Rep. James Leach, who is now
    supporting Obama, was a lead sponsor in the House of Representatives,
    and these Democrats voted for the Bill in the Senate, Lincoln [D-AR],
    Feinstein [D-CA], Dodd [D-CT.], Biden [D-DE], Graham {D-FL], Cleland
    {D-GA.], Akaka and Inouye {D’s-HI], Durbin [D-IL.], Bayh {D-IN.],
    Breaux and Landrieu [D’s-LA.] , Sarbanes [D-MD.], Kennedy and Kerry
    [D’s-MA.], Levin [D-MI.], Baucus and Burns [D’s-MT.], Reid [D-NV.],
    Lautenberg and Torricelli [D’s-NJ.], Bingaman [D-NM.], Moynihan and
    Schumer [D-NY], Edwards [D-NC.], Conrad [D-ND.], Wyden [D-OR.], Reed
    [D-RI], Hollings [D-SC.], Daschle (for Obama early on) and Johnson
    [D’s-SD], Leahy [D-VT.], Robb [D-VA.], Murray [D-WA], Byrd and
    Rockefeller [D-WI]. The only Democrats to vote against were, Boxer,
    [D-CA.], Harkin [D-IA], Mikulski.[D’s-MD.] , Wellstone [D-WI.],
    Dorgan [D-ND], and Feingold [D-WI.]

    http://www.govtrack.us/congress/vote.xpd?vote=s1999-354
    http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

    A prescient article by Robert Kuttner (author of, ” Obama’s
    Challenge: America’s Economic Crisis and the Power of a Transformative
    Presidency (Paperback – Aug 25, 2008)
    Buy new: $14.95 $10.17
    26 Used & new from $8.76 ), see
    http://www.prospect.org/cs/articles?article=the_bubble_economy

  12. Dalton says:

    The comment wasn’t that the CRA was the vehicle that forced loans, he was clearly speaking about Politicians who pressed either through indirect methods or intimidation Bank and lending institutions to make loans that would never have been made in an environment where there was no CRA or pressure to put otherwise unqualified people in homes they could not afford or did not have the creditworthiness to purchase. The politicians changed the environment by making it mandatory to give loans to classes of individuals who could otherwise not own homes.

    It would be interesting to see the numbers on exactly how many of these loans are among those in trouble at this time, or were on the books of the banks that have now failed.

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