Daily Digest - May 28: Global Economy, Global Loopholes

May 28, 2013Rachel Goldfarb

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Globalisation isn't just about profits. It's about taxes too (The Guardian)

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Globalisation isn't just about profits. It's about taxes too (The Guardian)

Roosevelt Institute Senior Fellow Joseph Stiglitz argues that in today's global economy, all countries suffer when major corporations take advantage of tax loopholes, and that reform is needed so that corporations pay a fair income tax rate internationally.

The Facts (Captive Audience)

Roosevelt Institute Fellow Susan Crawford corrects what Comcast's Executive Vice President told the U.S. Conference of Mayors about how great high-speed Internet access is in the U.S. If the mayors believed him, they must not look at what household Internet costs in their cities.

See How Citigroup Wrote a Bill So It Could Get a Bailout (MoJo)

Erika Eichelberger spoke to Roosevelt Institute Fellow Mike Konczal about Citigroup's attempt to gut the "push-out rule," which would forbid banks from trading certain derivatives. This prevents banks from protecting risky trades with FDIC insurance, and Konczal says we need it "more than ever."

This Week in Poverty: Homeowners Take the Foreclosure Fight to the DOJ (The Nation)

Greg Kaufmann spoke to activists involved in protests last week to fight illegal foreclosures and push for principal reductions for homeowners at risk of foreclosure. These newly minted reformers first fought to keep their own homes; now they’re fighting for others.

  • Roosevelt Take: The jobs crisis hasn't helped people struggling to keep their homes. Roosevelt Fellows and other distinguished guests will discuss A Bold Approach to the Jobs Emergency on June 4th.

America is the only rich country that doesn’t guarantee paid vacation or holidays (WaPo)

In honor of Memorial Day, Ezra Klein reminds us that in the U.S., poorer workers are less likely to have any paid time off, and if they do, they get less. Compared to European countries' paid time off guarantees, yesterday's barbeques seem a little less exciting.

Let Them Make Their Own Jobs (NYT)

Nancy Folbre considers that statement to be the new "let them eat cake," because entrepreneurs and start-ups struggle as much as established businesses with the lack of demand. Creating your own job doesn’t guarantee you've created any income for yourself.

The Falling-Bridge Lesson: The U.S. Infrastructure Failure Is Still Totally Inexcusable (The Atlantic)

Matt Thompson thinks the bridge that collapsed near Seattle last week needs to be a wake-up call to increase spending on infrastructure. Maybe some members of Congress will take family road trips this summer and notice how the roads just end at that big blue space on their map now.

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Banks Are Reluctant to Give Women Home Loans

Mar 14, 2013

It's no secret to anyone that lending has been tight after the bubble popped. But it turns out the impact of that problem hasn't been felt equally. A new fact sheet from the Woodstock Institute reports that women are having a harder time getting home loans than men and that the picture is even worse for women of color.

It's no secret to anyone that lending has been tight after the bubble popped. But it turns out the impact of that problem hasn't been felt equally. A new fact sheet from the Woodstock Institute reports that women are having a harder time getting home loans than men and that the picture is even worse for women of color. The institute looked at people living in the Chicago area and found that joint home purchase mortgage applications headed by women were 24 percent less likely to actually get a loan than male counterparts. For African American women, that number jumps to 34 percent. Worse, women are far less likely to be able to refinance their current mortgages. Female-headed joint refinance applications were 39 percent less likely to succeed, and that number is 44 percent for African-American women.

We might think that the days when women can't get a loan without their husband's signature is far behind us, but clearly the legacy lives on. Read more of the fact sheet here.

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Roosevelt Reacts: How the State of the Union Could Be Even Stronger

Feb 13, 2013

President Obama laid out some strong progressive ideas, but there's lots more work to be done.

Richard Kirsch, Roosevelt Institute Senior Fellow:

Two years ago, progressive groups came together to develop the Progressive Economic Narrative. And last night, at the very beginning of his State of the Union address, the president began with our story, ending with our central metaphor:

President Obama laid out some strong progressive ideas, but there's lots more work to be done.

Richard Kirsch, Roosevelt Institute Senior Fellow:

Two years ago, progressive groups came together to develop the Progressive Economic Narrative. And last night, at the very beginning of his State of the Union address, the president began with our story, ending with our central metaphor:

Our economy is adding jobs, but too many people still can’t find full-time employment. Corporate profits have skyrocketed to all-time highs, but for more than a decade, wages and incomes have barely budged. It is our generation’s task, then, to reignite the true engine of America’s economic growth: a rising, thriving middle class.

Then he said the way we build that middle-class economic engine is by following the same path we laid out: government investment in research, infrastructure, energy and education. And he added at least some substance on good jobs, with his minimum wage proposal. This is a battle of ideas and policies we should welcome. 

Dante Barry, Chapter Services Coordinator & Summer Academy Fellowship Coordinator at the Campus Network:

Last night, the president announced a new Presidential Voting Commission, an ambiguous and amorphous idea to address the "voter experience" on Election Day, chaired by lawyers from the Obama and Romney campaigns. I am pleased that he decided to tackle this problem, yet I am also disheartened to see the efforts to take bold action on voting reform do not include a large amount of input from the communities represented, suppressed, and deterred. This commission should provide forward-thinking recommendations and take bold action to support our most sacred right for any American: one voice, one vote. We have a responsibility to provide access and opportunity for every American to vote in a way that reflects this country's progress and values with 21st century innovation and technology. 

Thomas Ferguson, Roosevelt Institute Senior Fellow and Professor of Political Science, University of Massachusetts:

What you think of the president’s speech depends on what you think the real state of our union is. I think that we are five years into an economic crisis that is barely improving thanks to a huge deficiency in aggregate demand for goods and services. All over the globe, that crisis is toppling governments, fanning competitive depreciations, and, if you look closely, stimulating arms races, especially in Northeast Asia, where governments are pushing back more vigorously against the economic crisis than in our own country. Against this standard, the president’s proposals look pretty weak. Spending $50 or even $100 billion on infrastructure is a drop in the bucket. Raising the minimum wage is an excellent idea, but it won’t solve the aggregate demand problem. We’ll just have to see about climate change, but acknowledging the problem is just a first baby step. And the problem of medical costs is fundamentally a problem of monopolistic practices and limited information. If you don’t name that situation and deal with it, you have no real hope of delivering better care at lower cost. The president didn’t. To all of this, of course, there is a ready answer: If you don’t like these proposals, wait till you see those of the Republicans. And, this, alas, is equally true. Except when it comes to drones and killing Americans without due process.

Bryce Covert, Editor of Next New Deal:

Women were decisive in helping elect President Obama to a second term, and last night he began to start thanking them for their support. Perhaps the most important policy he proposed was his call for universal preschool, an enormous yet desperately needed program that would not only help children, but also help their working parents -- and let's be real, mothers still do the majority of work in caring for children -- go to their jobs knowing their children are taken care of. But he also put forward some other key policies that, if they were to be passed, would mean a lot to the country's women workers. He called for a raise in the minimum wage to $9 an hour and to have it indexed to inflation so that it doesn't continue to stagnate as it has for the past three years. Women absolutely need a raise in the minimum wage. They make up two-thirds of the workers who make such low pay. He unfortunately didn't call for a raise in the tipped minimum wage, which has been stuck at $2.13 for 20 years and would give a huge boost to the 64 percent of waiters who are women. But he did take aim at another problem affecting women's pay: salary secrecy. He called for the passage of the Paycheck Fairness Act, which would build on the Lilly Ledbetter Act to get rid of the ban at half of all companies on discussing salary. Women first have to know what their coworkers are making before they can root out discrimination. All three of these policies would actually be huge steps forward in combatting the gender wage gap, as balancing children and work, making the minimum wage, and being forced into secrecy about paychecks are big factors.

Jordan Fraade, D.C. Pipeline member:

In terms of its delivery, the State of the Union felt like a victory lap: President Obama seems more confident and confrontational, a little bit feisty, and vindicated by the election. But despite this tone, the speech’s policy proposals seemed to focus on incremental change with a few major exceptions (universal Pre-K is a pretty big deal). The president kept coming back to the idea of making government “smarter,” not larger or smaller. His proposal for a “Fix-It-First” program for infrastructure is typical of this approach to policy, and in this case, it’s a good move. Putting people to work doing things like rebuilding deficient infrastructure and revitalizing abandoned urban neighborhoods is a far smarter way to plan for the future than building new highways to the suburbs and encouraging sprawl, which has been standard U.S. policy for over 60 years. However, along with his comments on mortgage relief and homeownership, I would have liked to see President Obama propose something to help renters as well, who are disproportionately urban, minority, and young and end up subsidizing homeowners through the tax code. Millennials, who graduated into a bad economy and a bottomed-out housing market, have largely had no choice but to pay the rent that’s asked of them, since tight credit and low salaries have made buying a home nearly impossible. The president, whose administration is filled with smart growth advocates, likely knows all of this already. His Millennial supporters would surely appreciate it if he acted on it during the next four years.

Mike Malloy, Campus Network member and student at Michigan State University:

In recent years, two Republican strategies to weaken the Democratic voting base have emerged at the state level: voter restriction and attacks on labor. Unfortunately—and unsurprisingly—President Obama neglected both in his speech last night. The president's eagerness to see bipartisan cooperation is commendable. But failing to expose partisan games undermines his bipartisan vision, enables the misleading of the public, and hurts targeted groups.

The president spoke about “improving the voting experience,” addressing logistical issues that caused long waits in November. Why not address attempts to supress voters by requiring special identification and limiting early voting, both intended to obstruct Democratic voters? The president could still champion convenient voting efforts and—in a perfect world—even call for both parties to end gerrymandering.

Likewise, despite emphasizing manufacturing and proposing a new minimum wage, the president did not mention organized labor, including the right-to-work laws and collective bargaining restrictions Republican state legislatures have passed to weaken unions' political influence. Acknowledging the problematic worker pension and benefit costs state and local governments face, President Obama might have called for a renegotiation of contracts while reaffirming the rights of workers, acknowledging the views of both parties. Instead, the president's silence continued a trend of staying quiet on labor issues. This likely stems from the unpopularity of unions, but it also reinforces that negative view.

The president's pursuit of bipartisanship cooperation is truly admirable. But in order to achieve it, he should call attention to egregious acts of partisan gamesmanship in addition to finding common goals.

Tim Price, Deputy Editor of Next New Deal

There were a lot of takeaways from last night's State of the Union, but the most striking to me is that after the last four years, President Obama still has the ability to surprise us. After what many viewed as an uncharacteristically progressive inauguration speech, there was potential for the president to retreat into his reflexively centrist comfort zone -- and there were hints of that, like his insistence that nothing he wants to do should add to the deficit, or the questionable decision to lead off the night by talking about entitlement reform. But for the most part, he exceeded expectations and behaved like post-2012 Obama, who seems much more comfortable pushing the boundaries of the debate now that he knows he won't be running for anything again. Who expected him to even mention the minimum wage or universal pre-K, let alone highlight them as major policy proposals, before the prepared text began to leak last night? We still have a long way to go before the solutions on the table measure up to the challenges we face, but at least we're having the conversation.

Where Obama defied expectations, Republicans met them, to their detriment and ours. Whether the topic was jobs, immigration, voting rights, or protecting women from violence, John Boehner kept his hands at his sides and grimaced as if he were sitting on a tack -- except that would at least have motivated him to stand up. In his response, Republican rising star Marco Rubio rehashed every tired anti-government argument you've heard a thousand times before and offered bold ideas like... tax cuts. It's obvious that they have nothing new to offer and are hoping mindless obstruction will be a winning strategy like it was in 2010. But that was a different time and a different economy, and the president's message to them last night was clear and forceful: we're all tired of your shtick. What else have you got?

Tarsi Dunlop,  D.C. Pipeline leader:

President Barack Obama highlighted the importance of investment last night: in America, in the middle class, and in future generations. He also talked about the return on investment, which is particularly pertinent when it comes to expanding access to early childhood education. Access to high-quality Pre-K education is one of the most effective ways to ensure that all children are prepared for academic success in K-12 and then ultimately for college and careers. If children are not reading at grade level by third grade, they are at a higher risk of falling behind and dropping out by the time they reach high school. Early childhood education offers early exposure to vocabulary, numbers, and helps children learn how to socialize with others. An additional benefit for families is that access to Pre-K education allows both parents to earn an income while offering children a safe and engaging learning environment. Outside high-quality daycare is expensive, and many parents don't have several hundred dollars a week to pay for it, something that the president noted last night. While expanding early childhood education is not cheap, there is a significant lifelong return on investment over the course of a lifetime, as the president pointed out: boosting graduation rates, reducing teen pregnancy and violent crime, increasing the likelihood of students holding a job, and having more stable families of their own. Ideally, as this proposal gains traction, the president’s definition of "working with states" should not involve competitive grant funding. This implementation method puts resource-strapped districts and states at a disadvantage in applying for funding and creates winners and losers. Best practices already exist for statewide programs, with effective public-private partnerships, that can and should be replicated. In the spirit of progressive values and ideals, dollars and investment should reflect an equal and fair commitment to each child, regardless of external circumstances. 

Michelle Tham, Campus Network member and student at American University:

Obama's speech mentioned the success in natural gas and how further investments must be funneled into the renewable energy sector. However, by not mentioning intellectual property rights, Obama misses the target of the conversation on renewable energy. Alternative energy resources is one topic that all countries are willing to share information on, except the United States. Foreign firms from Europe invest in China and India because their IPR (intellectual property rights) are less stringent, which allows the flow of information and design to flourish. China is the leading producer in solar panels because its designs are more affordable than American-based solar panels. Wind technology is China's third largest energy source domestically -- after coal and natural gas. Therefore, in order to increase innovative ideas, Obama needs more open trade policies with different countries and needs to encourage cooperation, not only in diplomatic relations, but in commercial relations as well. Technology transfers are occurring in commercial levels and the government's role is to facilitate such transaction. 

Naomi Ahsan,  D.C. Pipeline leader:

In his inaugural address, the president broke with the rhetoric of politics as usual to lay out his philosophy for good government in a very genuine manner. He used this new voice again in his State of the Union address and listed several legislative priorities within the overarching objectives of addressing poverty and gender justice. The first was raising the federal minimum wage. His description of how a family fully employed with honest work at the minimum wage can still be living in poverty captures the rationale for supporting welfare programs. The president also noted that persistent poverty has emerged as a geographically-defined phenomenon within the U.S. and called for direct community development efforts as well as making high-quality preschool available to every child. This would help break the cycle of poverty, particularly in distressed neighborhoods. Children from low-income families are already less likely to graduate high school and they start kindergarten demonstrably behind better-off peers on developmental milestones leading up to literacy. Making quality preschool universal would show that we have learned from seeing programs like Head Start and Jumpstart dramatically improve underprivileged children's educational prospects by providing extra support at the pre-kindergarten level. It is also important to recognize the connection between gender inequality and poverty: women account for about 62 percent of those earning the minimum wage and often are taking financial responsibility for leading families. Fair pay for these women workers contributes to the health and opportunity of children and families as a whole. I was impressed that the President was offering informed and thoughtful solutions for the growing issue of poverty, which has great potential for benefiting the economy and is deserving of the national attention that too often goes to deficit reduction.

Florence Otaigbe, Campus Network member and student at Michigan State University:

As a staunch supporter of President Barack Obama, my first reaction was that I couldn’t agree more with his introductory remarks on how America is now stronger than ever before. There is no disagreement when it comes to the matter of progress. The disagreement comes in trying to push progress further. During his address, the president laid out various proposals for his next term. Ranging from education to gun control, the president hit the nail on the head. Yet in spite of these great ideas, it’s up to Congress and the people for any change to occur. That’s where my reaction turns less optimistic. I truly believe that there is a great divide in Washington D.C. that is starting to reach the point of no return. Both sides are polarized like never before, and it’s really hard to reach a consensus on anything. I just don’t see how the country can advance when there is so much tension among the people who enable that advancement. There’s much more room for change in America, but most of that rests with most of our leaders in D.C. Without their cohesion, it’s likely that America will remain stagnant, and that is not what we want for our country.

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What Does the New Community Reinvestment Act (CRA) Paper Tell Us?

Dec 11, 2012Mike Konczal

There are two major, critical questions that show up in the literature surrounding the 1977 Community Reinvestment Act (CRA).

The first question is how much compliance with the CRA changes the portfolio of lending institutions. Do they lend more often and to riskier people, or do they lend the same but put more effort into finding candidates? The second question is how much did the CRA lead to the expansion of subprime lending during the housing bubble. Did the CRA have a significant role in the financial crisis?
 
There's a new paper on the CRA, Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, by Agarwal, Benmelech, Bergman and Seru, h/t Tyler Cowen, with smart commentary already from Noah Smith. (This blog post will use the ungated October 2012 paper for quotes and analysis.) This is already being used as the basis for an "I told you so!" by the conservative press, which has tried to argue that the second question is most relevant. However, it is important to understand that this paper answers the first question, while, if anything, providing evidence against the conservative case for the second.
 
Where is the literature on these two questions? One starting point is the early 2009 research of two Federal Reserve economists, Neil Bhutta and Glenn B. Canner, also summarized in this Randy Kroszner speech. On the first question Kroszner summarizes research by the Federal Reserve, the latest being from 2000, arguing that "lending to lower-income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by CRA-covered institutions." The CRA didn't cause changes to banks' portfolios, but instead required them to find better opportunities. More on this in a minute.
 
What about the second question? Here the Bhutta/Canner research notes that only six percent of higher-priced loans (their proxy for subprime loans) were extended by CRA-covered lenders to lower-income borrowers or CRA neighborhoods. 94 percent of these loans were either made by non-traditional banks not covered by the CRA (the "shadow banking system"), or not counted towards CRA credits. As Kroszner noted, "the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis."
 
How did those loans do? Here the research compared the performance of subprime and alt-A loans in neighborhoods right above and right below the CRA's income threshold, and found that there was no difference in how the loans performed. Hence the idea that a CRA-driven subprime bubble isn't found in the data. (The FCIC's final report, starting at page 219, has more on this and other research.)
 
So what does this new research do? It takes banks that were undergoing a normal examination to see if they were in compliance with the CRA, and thus under heightened regulatory scrunity, and compares their loan portfolios with banks that were not undergoing a CRA examination. It finds that the CRA exam increases loans 5 percent every quarter surrounding the event and those loans default 15 percent more often, under the idea that those banks were ramping up their loans to pass the CRA exam.
 
But this is question 1 territory. 94 percent of higher priced loans came outside CRA firms and outside CRA loans, and this research doesn't really change that. Since we are talking about regular mortgages - more on that in a second - that higher default isn't that scary. To put that in perspective, loans made in the quarter following the initiation of a CRA exam in a non-CRA tract are 8.3 percent more likely to be 90 days delinquent. That sounds scary, but it is an increase of 0.1, from 1.2 percent to 1.3 percent. In the CRA tract it is 33 percent more likely to default, going from 1.2 percent to 1.6 percent. FICO scores drop 7 points from 713.9 to 706.9. That's an increase I wouldn't want in my portfolio, but it is light-years away from 25%+ default rates, and very low FICO scores, on actual subprime.
 

This research, if anything, pushes against movement conservative CRA arguments. In light of the evidence in question 2, many conservatives argue that regulators used CRA to push down lending standards, which then impacted other firms. But this paper finds that extra loans aren't more likely to have higher interest rates, lower loan-to-value, or be balloon/interest-only/jumbo/buy-down mortgages, although there is a slight increase in undocumented loans. And their borrowers aren't more likely to have risky characteristics themselves. The authors conclude that "this pattern is consistent with banks’ strategic attempts to convince regulators that the loans they extend that meet CRA criteria are not overtly risky."

Read that again. The authors argue, from their empirical evidence, that regulators were trying to make sure these loans had high standards, and CRA banks tried to comply with that as best they could on the major, visible risks of their loans. This is the opposite argument made by people like John Carney, who believes the CRA "encourag[ed] lenders to adopt loose standards for mortgages." It also pushes against people like Peter Wallison, who, in his FCIC dissent, argued that CRA loans were more likely to have subprime characteristics or riskier borrowers in ways not captured by a higher-price variable. Not the case.

It also finds that loan volume and risk increases the most during 2004-2006, and points to the private securitization market as an important channel. This, along with characteristics above, pushes back against the idea that the CRA primed a subprime pump in the late 1990s and early 2000s, another favorite of movement conservative finance writers. If anything, banks undergoing CRA exams were caught up in the same mechanisms that were causing the housing bubble itself.

I'm not sure I buy all of the research. If CRA banks take on too many loans during examination, why wouldn't they just loan less afterwards, balancing out? The paper jumps to argue the opposite, as it is worried that "adjustment costs may cause banks to keep elevated lending rates even after the CRA exam is formally completed." This is meant to establish their results as a lower-bound, rather than an upper-bound. But really? They managed to ramp up their lending in enough time during this time. Either way it would throw a very different set of interpretations on their research. I'm interested in seeing how other researchers react to these problems. But for now these results don't change the way we approach the financial crisis.

 

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There are two major, critical questions that show up in the literature surrounding the 1977 Community Reinvestment Act (CRA).

The first question is how much compliance with the CRA changes the portfolio of lending institutions. Do they lend more often and to riskier people, or do they lend the same but put more effort into finding candidates? The second question is how much did the CRA lead to the expansion of subprime lending during the housing bubble. Did the CRA have a significant role in the financial crisis?
 
There's a new paper on the CRA, Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, by Agarwal, Benmelech, Bergman and Seru, h/t Tyler Cowen, with smart commentary already from Noah Smith. (This blog post will use the ungated October 2012 paper for quotes and analysis.) This is already being used as the basis for an "I told you so!" by the conservative press, which has tried to argue that the second question is most relevant. However, it is important to understand that this paper answers the first question, while, if anything, providing evidence against the conservative case for the second.
 
Where is the literature on these two questions? One starting point is the early 2009 research of two Federal Reserve economists, Neil Bhutta and Glenn B. Canner, also summarized in this Randy Kroszner speech. On the first question Kroszner summarizes research by the Federal Reserve, the latest being from 2000, arguing that "lending to lower-income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by CRA-covered institutions." The CRA didn't cause changes to banks' portfolios, but instead required them to find better opportunities. More on this in a minute.
 
What about the second question? Here the Bhutta/Canner research notes that only six percent of higher-priced loans (their proxy for subprime loans) were extended by CRA-covered lenders to lower-income borrowers or CRA neighborhoods. 94 percent of these loans were either made by non-traditional banks not covered by the CRA (the "shadow banking system"), or not counted towards CRA credits. As Kroszner noted, "the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis."
 
How did those loans do? Here the research compared the performance of subprime and alt-A loans in neighborhoods right above and right below the CRA's income threshold, and found that there was no difference in how the loans performed. Hence the idea that a CRA-driven subprime bubble isn't found in the data. (The FCIC's final report, starting at page 219, has more on this and other research.)
 
So what does this new research do? It takes banks that were undergoing a normal examination to see if they were in compliance with the CRA, and thus under heightened regulatory scrunity, and compares their loan portfolios with banks that were not undergoing a CRA examination. It finds that the CRA exam increases loans 5 percent every quarter surrounding the event and those loans default 15 percent more often, under the idea that those banks were ramping up their loans to pass the CRA exam.
 
But this is question 1 territory. 94 percent of higher priced loans came outside CRA firms and outside CRA loans, and this research doesn't really change that. Since we are talking about regular mortgages - more on that in a second - that higher default isn't that scary. To put that in perspective, loans made in the quarter following the initiation of a CRA exam in a non-CRA tract are 8.3 percent more likely to be 90 days delinquent. That sounds scary, but it is an increase of 0.1, from 1.2 percent to 1.3 percent. In the CRA tract it is 33 percent more likely to default, going from 1.2 percent to 1.6 percent. FICO scores drop 7 points from 713.9 to 706.9. That's an increase I wouldn't want in my portfolio, but it is light-years away from 25%+ default rates, and very low FICO scores, on actual subprime.
 

This research, if anything, pushes against movement conservative CRA arguments. In light of the evidence in question 2, many conservatives argue that regulators used CRA to push down lending standards, which then impacted other firms. But this paper finds that extra loans aren't more likely to have higher interest rates, lower loan-to-value, or be balloon/interest-only/jumbo/buy-down mortgages, although there is a slight increase in undocumented loans. And their borrowers aren't more likely to have risky characteristics themselves. The authors conclude that "this pattern is consistent with banks’ strategic attempts to convince regulators that the loans they extend that meet CRA criteria are not overtly risky."

Read that again. The authors argue, from their empirical evidence, that regulators were trying to make sure these loans had high standards, and CRA banks tried to comply with that as best they could on the major, visible risks of their loans. This is the opposite argument made by people like John Carney, who believes the CRA "encourag[ed] lenders to adopt loose standards for mortgages." It also pushes against people like Peter Wallison, who, in his FCIC dissent, argued that CRA loans were more likely to have subprime characteristics or riskier borrowers in ways not captured by a higher-price variable. Not the case.

It also finds that loan volume and risk increases the most during 2004-2006, and points to the private securitization market as an important channel. This, along with characteristics above, pushes back against the idea that the CRA primed a subprime pump in the late 1990s and early 2000s, another favorite of movement conservative finance writers. If anything, banks undergoing CRA exams were caught up in the same mechanisms that were causing the housing bubble itself.

I'm not sure I buy all of the research. If CRA banks take on too many loans during examination, why wouldn't they just loan less afterwards, balancing out? The paper jumps to argue the opposite, as it is worried that "adjustment costs may cause banks to keep elevated lending rates even after the CRA exam is formally completed." This is meant to establish their results as a lower-bound, rather than an upper-bound. But really? They managed to ramp up their lending in enough time during this time. Either way it would throw a very different set of interpretations on their research. I'm interested in seeing how other researchers react to these problems. But for now these results don't change the way we approach the financial crisis.

 

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Roosevelt Reacts: What Does Last Night Mean and Where Do We Go From Here?

Nov 7, 2012

President Obama won a second term. How did he get there? And what should he do now? Roosevelt weighs in.

Thomas Ferguson, Roosevelt Institute Senior Fellow, Professor of Political Science, University of Massachusetts, and Contributing Editor, AlterNet:

President Obama won a second term. How did he get there? And what should he do now? Roosevelt weighs in.

Thomas Ferguson, Roosevelt Institute Senior Fellow, Professor of Political Science, University of Massachusetts, and Contributing Editor, AlterNet:

Now that it’s over, it’s time to take stock. All counts are incomplete, but something like 116 million votes were cast. The presidential election alone cost about $2.6 billion, or a bit more than $22 dollars per vote. But that money wasn’t spread evenly over America; in battleground states like Ohio, the sums per voter were much larger. Now look at the exit polls in today’s New York Times. Yes, indeed, Obama did very well among women, Latinos, and African-Americans. But in sharp contrast to 2008, the partisan split along income lines is huge. Obama’s vote percentage declines in straight line fashion as income rises. He got 63 percent of the votes of Americans making less than $30,000 and 57 percent of those making between $30,000 and $50,000. Above $50,000, the Other America kicks in. Romney won 53 percent of the votes of Americans making between $50 and $100,000 and 54 percent of the votes of Americans making above $100,000. The Democrats’ poor showing in the House elections – they way under-performed for a party that had lost so many seats two years before – probably reflects a Republican advantage in money, including the famous Super PACs, some of which poured resources into congressional races. It was surely also affected by the White House’s reluctance to spend time and resources trying  to elect Democratic House candidates. As the president negotiates for a Grand Bargain in the face of the fiscal cliff, these are realities that are worth remembering

Jonathan Silverstone, Roosevelt Institute | Campus Network member and sophomore at Yale University:

In the months leading up to yesterday's reelection of President Barack Obama, both candidates said very little about a critical issue in the ongoing economic recovery: housing. Yet President Obama’s reelection can certainly provide affordable housing advocates hope in the face of some of the things Governor Mitt Romney had to say on the campaign trail. Eliminating the Department of Housing and Urban Development and scaling back key grant programs were just two of the possible policies a Romney administration may have enacted had he won the presidency. While this general direction for the federal government has been avoided, there is a larger issue at hand.

A report by the Institute for Children, Poverty & Homelessness demonstrates just how urgently we need a policy solution to the fundamental lack of affordable housing. It points to HUD figures that show a growing gap between low-income housing demand and current low-income housing stock during a time of increasing rates of homelessness in America. This gap reached 5.5 million units in 2009. The Obama administration must act to ensure demand for affordable housing is met and to assist low-income households in being able to afford this housing.

More immediately, the broad budget cuts constituting January’s scheduled sequestration present the president with a much more pressing housing issue. If Washington does not devise a budget compromise, multiple key housing programs that help fund public housing operations and provide rental assistance to low-income families stand to lose hundreds of millions of dollars. As America looks toward another four years of President Obama, and hopefully toward revamped policy that combines with market incentives to meet affordable housing demand, the lame duck Congress must work with the administration immediately to make sure crucial housing programs remain untouched before we hit the fiscal cliff in January. 

Tarsi Dunlop, member of the Roosevelt Institute | Pipeline in DC:

Now that the election results are in (well most of them are), we can start looking forward to the next four years. It is difficult to figure out where to start, but the first issue will be the rapidly approaching "fiscal cliff." We cannot bask in the glow of the election for long; we must protect the middle class from devastating cuts to essential programs and services. Beyond that, we must advocate for a federal budget that deals with our deficit in a responsible manner over the long-term; we are slowly recovering from the Great Recession, but progress is fragile and many American families are still suffering from unemployment (or underemployment). We cannot afford cuts that will undermine our gradual economic growth, growth that is by some estimates expected to produce 12 million more jobs over the next four years. Building, or in this case re-building an economy, takes time and we won’t turn back now.

This fall, President Obama asked the nation to give him four more years, to continue the work we started in 2008. Other issues that should be on the progressive agenda include protecting and expanding the social safety net for future generations, pursuing policies to reduce our impact on the environment in hopes of addressing the ever-growing threat of climate change (an issue rarely mentioned on the campaign trail), and advocating for responsible policies that will help our nation’s schools provide a quality education for each child. Our efforts to invest in the middle class continue and as we implement the Affordable Care Act, we know we won’t need to defend it against potential attacks from a Romney administration. By 2014, more Americans will feel the benefits of the president’s signature domestic achievement.

President Obama, and the progressive community as a whole, will find powerful allies in the United States Senate come January with Tammy Baldwin’s election as the first openly gay U.S. Senator and Elizabeth Warren’s win in Massachusetts. Indeed, the Bay State has sent another liberal lion to the Senate floor to advocate for policies that help working and middle-class families. These voices will defend a woman’s right to choose and make decisions about her own body. As progressives, we believe in inclusivity and justice for those of all backgrounds, and they will stand for those with no lobby. They will challenge the influence of oil companies and large corporations.  They will push the discussions we should have when it comes to governing and the role of government. It is time to continue that discussion.

However ambitious we are, we must recognize that the work will go on long after President Obama leaves office. The young people who once again broke sharply for the incumbent understand this reality and are rising to the challenge. Although Millennials are faced with dim job prospects, less security in their retirement, and in many cases, high levels of student debt, they are community oriented and civically engaged. They care about the vulnerable children as child hunger rates remain stubbornly high; they care about the dignity and security of our seniors and the mental and physical health of our veterans. They care about our infrastructure and want to see us investing in our nation’s roads, water pipes and public transportation. In 2008, when then-Senator Barack Obama said “Yes We Can,” he meant we, the people. As one man, he (and U.S. presidents before and those to come) cannot create change. We must work toward that change, over the next four years and the next four decades in our communities and local governments. The question we are asking now, one that we should also ask of ourselves, is: what’s next?

Melia Ungson, Roosevelt Institute | Campus Network Northeast regional coordinator and student at Yale University:

Last night, I breathed a sigh of relief instead of jumping for joy (though, admittedly, there were shouts of excitement). Watching results from other races and ballot initiatives come in, I was similarly relieved to see voters in so many places support candidates and ballot measures to protect equal rights, which will hopefully elevate the discourse.  

Even though I go to school in Connecticut, which had a close senate race, I vote in California, largely because of the propositions, which are often close. In a state known recently for its budget issues and gridlock in the state legislature, the propositions serve as an alternate route for voters to address issues directly. Last night, California voters narrowly approved Prop 30 to help fund education and approved Prop 36 to reform the three strikes law, both exciting victories. However, voters failed to approve Prop 34 to repeal the costly and archaic death penalty and Prop 37, which would require the labeling of genetically engineered foods. California prides itself on being a forward-thinking state at the forefront of technology, environmental policy, and social equality, but voters do not always reflect this with propositions.

With all these election results, good, bad, mixed, or still to be decided, the pressure is on to start getting things done. I was excited that Obama alluded to issues like climate change and LGBT rights in his speech last night, and am hopeful that he and other re-elected or newly elected representatives will make progress on these and other issues come January. Our job as Millennialis is to continue to drive meaningful discourse, continue to put forth our own ideas on how best to work toward a stronger future, and ensure that issues important to young people don't fall by the wayside. 

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A Post-Debate Interview with Glenn Hubbard on Housing Policy

Oct 22, 2012Mike Konczal

There were no serious housing questions at any of the presidental debates. Given how important the housing market is for both voters and the economy, this is surprising and disappointing. As Zachary Goldfarb noted, "here are a few words that surprisingly have not shown up through much of this debate: housing, mortgage, refinance, underwater." 

There were no serious housing questions at any of the presidental debates. Given how important the housing market is for both voters and the economy, this is surprising and disappointing. As Zachary Goldfarb noted, "here are a few words that surprisingly have not shown up through much of this debate: housing, mortgage, refinance, underwater." 

I attended last Tuesday's presidential debate at Hofstra University as press for Al-Jazeera English, providing TV commentary on economic issues. It was my first debate, so I took some time to wander around. While exploring after the debate was over, I found the Spin Alley area, which is the area where politicians and campaign people stand by to give quick media responses. Handlers held large signs advertising the people in question. I saw a "Hubbard, Glenn" sign in the air, and the Columbia economist and Romney economic advisor standing by to give spin on the debate.

I decided to get some housing questions on the table. When some people, notably Josh Barro, argue Romney has a secret economic plan, and in particular a secret housing plan, they cite Hubbard, who has been very vocal on boosting demand through interventions in the housing market. I've noted that his plans might not be that different from what Obama is currently doing.

Below is a transcript of what I got a chance to ask him:

Mike Konczal: In 2008 you co-wrote a plan with Chris Mayer on the housing market that called for mass refinancing and principal reduction through the GSE. In 2011 you released another plan with Mayer that just featured the mass refinancing. Why was there the change?

Glenn Hubbard: It wasn't principal reduction; it was setting up a Home Owners' Loan Corporation model.

There was a debt-to-equity swap in your proposal.

Right. What we focused on in 2011 was trying to give direction to the Obama administration, which was bungling the mass refinancing so badly. That's why we focused on that. I still think it would be a good idea to have a Home Owners' Loan Corporation. But the point of that piece was that the Obama administration had bungled every housing plan, so we were trying to provide some guidance.

Earlier this year, HARP, the Home Affordable Refinancing Program, was relaunched as HARP 2.0.

It's still a failure.

After the relaunch, we are seeing a large increase in refinancing on very underwater homes, particularly those with loan-to-value over 125 percent.

It's still a failure. If you compare it to the number that Chris Mayer and I had argued, it's trivial.

Compared to the number of possible refinancing?

Yes. The reason is the GSEs have stood in the way, and the Obama Treasury has not managed the GSEs in such a way as to facilitate its own policies. It's really quite sad.

But that's an FHFA problem, is it not?

I'm sorry, but you can't duck the FHFA.

So you think President Obama should have done a recess appointment [to replace Ed DeMarco] at the FHFA?

I don't manage the Obama appointments, but I do know that the FHFA has mismanaged the president's own plan.

What would a President Romney put forward in the housing market?

What Governor Romney wisely is focused on is the long term in housing. We need to wind down the portfolios of the GSEs and reassess the government's role in such a way to get more private capital back into housing.

In 2008 you argued that cramdown, or some sort of bankruptcy reform, was a bad idea because it could impact long-term growth. In retrospect, do you still think that?

Yes. I still believe that. I absolutely think that was the correct call.

Thank you for your time.

==========

Mike here, with a few notes. According to the latest data from FHFA, there have been 118,470 refinances of mortgages with an LTV over 125 percent between February, when HARP 2.0 allows for these seriously underwater refinancings, and now. Here's a graph from Dan Green's Mortgage report:

Matt Zeitlin has more on the initial successes of HARP 2.0 at the Daily Beast. Rather than the legal issues at FHFA, it seems that the next big blockages in turning record low mortgage rates into increased consumer demand through refinancing are applications overwhelming banks, the financial sector collecting oligopolistic rents from not passing along low rates to consumers via their pricing power, and lack of competition on HARP refinances.

Hubbard is correct that Ed DeMarco is blocking principal reduction at FHFA, preventing the adminstration from pursuing their own plans. I was surprised to see Hubbard pushing for a a Home Owners' Loan Corporation (HOLC) structure now, and I wonder if he'd fight for what Senator Merkley is currently proposing. An HOLC model could bypass some of these new blockage problems we are seeing on record low interest rates, benefiting homeowners.

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Despite a Strong Debate, Obama Remains Vulnerable on the Economy

Oct 18, 2012Jeff Madrick

The president found his voice in the second debate, but he still needs to make a clearer case for the progress he's made.

There has been entirely too much celebrating about President Obama’s debate performance on Tuesday. He did very well, without a doubt. He won hands down. He didn’t get into the ring cold, and he showed that he knew his stuff—and that Romney really didn’t.

The president found his voice in the second debate, but he still needs to make a clearer case for the progress he's made.

There has been entirely too much celebrating about President Obama’s debate performance on Tuesday. He did very well, without a doubt. He won hands down. He didn’t get into the ring cold, and he showed that he knew his stuff—and that Romney really didn’t.

But the economy remains the ace in the hole for Romney and Ryan. We haven’t nearly recovered in terms of jobs, and that’s a tough fact to slide by. The unemployment rate rose rapidly in Bush’s last term to around 8 percent, then peaked in 2009 at 10 percent and slowly came down to its current level. So we are only back to the start of the Obama term. No one ever won the presidency with a 7.8 percent unemployment rate. And we know, as Romney keeps reminding us, that median family income is awful and that poverty is up.

Everyone knows this, and yet Obama did not have a good enough explanation of how much progress has been made. He sounded defensive. So Obama needs a strong, non-defensive explanation of his achievements, and one way to put it is what would have happened had Romney won the presidency in 2008. You’d have a 10 percent unemployment rate with Romney as president. Poverty would be way up. He’d be blaming Social Security and Medicare for all his problems, and he’s find economists to claim he was right. They might already be cutting these programs forever “in order to save them.” It’s triage -- throw the elderly out of the boat and let everyone else eat the rations. People would be poorer. They would get less health care. Those in poverty would have fewer benefits. Is that the kind of America you want?

Odds are that Romney, if he put the Romney-Ryan plan into effect, would create a bigger deficit, too. That’s actually what we need, but a deficit based on tax cuts will create few jobs. (EPI ran some numbers based on Mark Zandi's multipliers.) And if Romney did close the many tax holes he promises to, recession is almost guaranteed even as your taxes rise.

This concept is tough to communicate in a credible way. It just sounds like economists bickering. But there is a record out there: George W. Bush’s. His central economic policy was tax cuts for the rich, and he produced the slowest job growth of any president since the Depression. Romney will do that again. Promise.

Obama has to be clear: He stopped a depression. He is getting the housing market to come back after the worst devastation since the early 1930s. Employment stopped falling. But he shows hesitation in critical areas. Will he protect Social Security and Medicare? If so, then say so. The other guys will cut it, even gut it. But is he vacillating too much here. The talk about Dodd-Frank doesn’t win him many points because most of America thinks the banks got away with murder. He needs a better way of talking about that. As for Obamacare, he is talking about its good points, but he needs to be bolder still. List them all, and list them fast.

And when he says Romney is lying, which is a deliberate motif of the Republican game plan, don’t say he lied with a smile. Say, "It makes me very sad and disheartened when the governor misleads the American people. It is unfair to you voters. And when challenged, my opponent will come back and tell you again, that’s not what his program is, or he never said that. Be proud of your claims, Governor Romney; don’t back off them to win over some in the middle of the pack. Tell them where you really stand."

Finally, it is critical to be constructive about the uses of government. Tell America the only way the country will succeed and the economy will remain prosperous is if we bring everyone with us. Every American must be able to contribute to the economy with a good education and good health. Every region must have good, dependable transportation. Every part of America must breathe clean air. Government can do that.

Unfortunately, there is no third debate about domestic matters since the next one is on international events. But I bet we get back to the economy in the third debate. I hope so. Democrats have to realize that every time Romney says "just look at the record," they are behind the eight ball. Obama needs a very clear, persuasive statement about how bad the economy was in 2009 and how much he did. He stopped the bleeding. The patient was in the hospital. Who put him there? The Republicans, with the same plan Romney is offering today. The patient is resuscitated. Jobs are coming back. The housing market has turned the corner. Everyone is still getting Social Security and Medicare. And now 30 million more will have health insurance. 

Oops, I've already said all this. Sorry, readers. But why do I have to keep repeating it?

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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Worried About TBTF Banks? Ignore Romney's Attacks in the Debate.

Oct 5, 2012Mike Konczal

The big question is not whether to dismantle Dodd-Frank, but whether it gets implemented correctly.

Wednesday's presidential debate had a relatively detailed discussion of the Dodd-Frank financial reform bill. From a transcript, this is how President Obama described what the bill does:

The big question is not whether to dismantle Dodd-Frank, but whether it gets implemented correctly.

Wednesday's presidential debate had a relatively detailed discussion of the Dodd-Frank financial reform bill. From a transcript, this is how President Obama described what the bill does:

We said you've got -- banks, you've got to raise your capital requirements. You can't engage in some of this risky behavior that is putting Main Street at risk. We've going to make sure that you've got to have a living will so -- so we can know how you're going to wind things down if you make a bad bet so we don't have other taxpayer bailouts. [...] And, you know, I appreciate and it appears we've got some agreement that a marketplace to work has to have some regulation. But in the past, Governor Romney has said he just want to repeal Dodd- Frank, roll it back.
 
And so the question is: Does anybody out there think that the big problem we had is that there was too much oversight and regulation of Wall Street? Because if you do, then Governor Romney is your candidate. But that's not what I believe.
The sleepy delivery aside, this is a good description. I would have liked to seen a reference to the CFPB ("cops on the beat protecting consumers") and derivatives reform ("making sure our financial markets are transparent"), since they are both under serious attack from conservatives. But it's not bad for a high-level overview.
 
What was Mitt Romney's critique of Dodd-Frank?
One is it designates a number of banks as too big to fail, and they're effectively guaranteed by the federal government. This is the biggest kiss that's been given to -- to New York banks I've ever seen. This is an enormous boon for them....We need to get rid of that provision because it's killing regional and small banks. They're getting hurt.
 
Let me mention another regulation in Dodd-Frank. You say we were giving mortgages to people who weren't qualified. That's exactly right. It's one of the reasons for the great financial calamity we had. And so Dodd-Frank correctly says we need to have qualified mortgages, and if you give a mortgage that's not qualified, there are big penalties, except they didn't ever go on and define what a qualified mortgage was.
 
It's been two years. We don't know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try and get a mortgage these days. It's hurt the housing market because Dodd-Frank didn't anticipate putting in place the kinds of regulations you have to have. It's not that Dodd-Frank always was wrong with too much regulation. Sometimes they didn't come out with a clear regulation.

First off, as Adam Levitin notes, the reason that we don't have a QM definition is because that requires having a CFPB director. And who has been blocking a CFPB director consistently from the beginning? Senate Republicans. President Obama had to recess appoint a director in order to get this rule started, much to the chagrin of Republicans. So it is a bit much to block the nominee necessary to start the agency and then complain the agency isn't getting things done.

That said, there are two major complaints here. The first is that Dodd-Frank's "resolution authority" and regulations for systemically important financial institutions (SIFI) are a "wet kiss" to the banks, and the second is that qualified mortgages are holding up the financial market. Let's take them in turn.

SIFI and Too Big To Fail

Part of Dodd-Frank's approach involves creating a graduated system of regulatory burdens for risky financial firms, combined with special resolution authority powers housed at the FDIC to resolve these firms when they fail. This gets attacked by conservatives, an attack Mitt Romney reiterated, because, they believe, it has three problems: (1) it picks a handful of winners, (2) protects those winners from competition through regulations that have no teeth, and (3) gives a signal to the market that these firms will be bailed out again in the future.

To address complaint (1), all bank holding companies with $50 billion or more in consolidated assets are included without a necessary designation, and systemically important financial institutions (SIFI) are included as well after a determination process. So it isn't just the top five firms, but instead the 35 plus that are all larger in size. If it were an advantage to be declared systemically important, SIFI financial firms would be fighting to get the designation. By all accounts they are not, and indeed they are fighting against this status.

For (2), it makes sense that they are fighting the designation because Dodd-Frank requires more capital and includes more requirements for riskier firms. Take Sec. 165, which requires "large, interconnected financial institutions" to be subject to "prudential standards...more stringent than the standards and requirements applicable to nonbank financial companies and bank holding companies that do not present similar risks to the financial stability of the United States."

Or Sec. 171, which requires that capital requirements scale with "concentrations in market share for any activity that would substantially disrupt financial markets if the institution is forced to unexpectedly cease the activity." The idea is that if a firm wants to get bigger or engage in riskier activity, the normal prudential requirements to hold more capital and plan for a failure should scale as well.

For (3), the question is whether it will work or whether the market will think there will be endless bailouts. As I've described at length elsewhere, the resolution authority in Dodd-Frank is designed to precommit against bailouts. You need three institutions to approve resolution, who must consider the decision with a bias toward the market and the bankruptcy code. If there's a liquidation, the FDIC has to wipe out shareholders, hit creditors, fire management and board members, and can't buy equity in the firm to keep it alive. The problem we face isn't Dodd-Frank, but Congress and the executive branch passing "TARP: Part Two."

So how is the market reacting? Jennie Bai, Christian Cabanilla, and Menno Middeldorp of the Federal Reserve Bank of New York wrote a great paper recently that used "Moody’s KMV credit default swap (CDS) implied probability of default to gauge changes in the market perception of the risk that senior bondholders will not be completely repaid." (Disclosure: In the past, I worked at Moody’s KMV, a well regarded credit risk firm founded as KMV by three old-school quants, as a financial engineer. As a result, I'm biased towards their probability of default methodologies as a metric.)

What did they find?

Using the results from this regression and the shift in Bloomberg resolution news over our sample, we estimate that the anticipated and actual changes in resolution regime have increased the CDS market’s expectations of default by approximately 20 basis points, which is around a fifth of the average CDS-implied default probability for G-SIFIs in March 2012. While this doesn’t necessarily mean that markets are no longer pricing in any possibility of government support, it does suggest that the new laws have resulted in the CDS market taking into account the view that senior bondholders run a higher risk that they’ll need to share in the costs of bank resolution.

The market is starting to price in the risk that senior bondholders at risky, major financial firms will take hits, and those risks are priced in alongside movements in the resolution authority law. Given that the rules aren't completed yet and that there are additional ways to bolster them, this is a good sign. Mitt Romney's attack on the overall plan embodied in Dodd-Frank isn't the right approach for people serious about tackling Too Big To Fail. The problems we should be worried about are whether there is a good implementation of the law and if it is sufficient for taking down a major firm.

QM

In addition to Adam Levitin's piece, you should read John Griffith and Julia Gordon of Center for American Progress, writing over at Think Progress, who have a piece on the QM issue.

We’re thrilled to hear Romney give such a full-throated defense of the ability-to-repay rule. It’s a welcomed about-face from his recent calls to repeal Dodd-Frank and dismantle the Consumer Financial Protection Bureau, the federal agency that’s responsible for enforcing the rule. That said, Romney has a few key facts wrong.

As Romney points out, the ability-to-repay rule has not yet taken effect as regulators are still defining the “Qualified Mortgage” exemption. But the Republican candidate neglected to mention that the final rule isn’t due until January 2013 — a deadline regulators appear to be on pace to meet. The Consumer Financial Protection Bureau submitted its proposed rule back in April and is currently hashing through public comments.

Romney seems to imply some sort of negligence or malfeasance from the Obama administration that is preventing the rule from being completed. Alas, no scandal here. The Dodd-Frank law is actually quite clear about what type of loan should be considered a “Qualified Mortgage.” The loan must be well-underwritten with verified income, employment, and debt information. Loan payments can’t exceed a certain percentage of the borrower’s net monthly income. The loan can’t contain risky feature like negative amortization, interest-only payments, or balloon payments. The list goes on.

It's a shame the debates didn't include anything on foreclosures or the housing market more generally, but the Dodd-Frank discussion was a pleasant surprise.

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Konczal and Grunwald: Could the Stimulus Have Been Better Without Being Bigger?

Sep 10, 2012

We've all heard the standard arguments about the stimulus: progressives think it should have been bigger, while conservatives think it was a pork-filled monstrosity.

We've all heard the standard arguments about the stimulus: progressives think it should have been bigger, while conservatives think it was a pork-filled monstrosity. But in the latest episode of the Roosevelt Institute's Bloggingheads series, Fireside Chats, Mike Konczal talks to Michael Grunwald, author of The New New Deal, about four stronger criticisms of the bill from the left.

Konczal notes that it probably wouldn't have been possible to pass a larger stimulus through Congress, but his first question is "Why didn't we have a WPA? President Roosevelt went out in one month and hired like four million people," so if we're facing a similar jobs crisis now, "why don't we just go and hire five million people to do whatever?"

Next, the Michaels discuss President Obama's rhetorical pivot toward deficit reduction and "the idea that you couldn't pass the first stimulus, you couldn't do more to expand the economy, without also bringing down the long-term debt," which led Obama to "straitjacket himself on this issue of worrying about the bond market."

Third, Konczal argues that "President Obama very much looked at how to attack the problem of unemployment as a budgetary phenomenon as opposed to using every lever at his disposal," including the Federal Reserve and the nationalized GSEs. Rather, he chose to "kick the can on housing, hoping unemployment would come down in two years."

Finally, Konczal says "the New Deal brought in kind of a new contract with government" that involved the creation of a safety net and a much stronger role for the federal government in the economy. He and Grunwald explore whether Obama's policies have the potential to create another paradigm shift that is "fundamentally a new kind of social reality, a political reality."

For more, including details on what was actually in the stimulus and how it reflected President Obama's broader agenda, check out the full video below:

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Konczal and Grunwald: Could the Stimulus Have Been Better Without Being Bigger?

Sep 10, 2012

We've all heard the standard arguments about the stimulus: progressives think it should have been bigger, while conservatives think it was a pork-filled monstrosity. But in the latest episode of the Roosevelt Institute's Bloggingheads series, Fireside Chats, Mike Konczal talks to Michael Grunwald, author of The New New Deal, about four stronger criticisms of the bill from the left.

We've all heard the standard arguments about the stimulus: progressives think it should have been bigger, while conservatives think it was a pork-filled monstrosity. But in the latest episode of the Roosevelt Institute's Bloggingheads series, Fireside Chats, Mike Konczal talks to Michael Grunwald, author of The New New Deal, about four stronger criticisms of the bill from the left.

Konczal notes that it probably wouldn't have been possible to pass a larger stimulus through Congress, but his first question is "Why didn't we have a WPA? President Roosevelt went out in one month and hired like four million people," so if we're facing a similar jobs crisis now, "why don't we just go and hire five million people to do whatever?"

Next, the Michaels discuss President Obama's rhetorical pivot toward deficit reduction and "the idea that you couldn't pass the first stimulus, you couldn't do more to expand the economy, without also bringing down the long-term debt," which led Obama to "straitjacket himself on this issue of worrying about the bond market."

Third, Konczal argues that "President Obama very much looked at how to attack the problem of unemployment as a budgetary phenomenon as opposed to using every lever at his disposal," including the Federal Reserve and the nationalized GSEs. Rather, he chose to "kick the can on housing, hoping unemployment would come down in two years."

Finally, Konczal says "the New Deal brought in kind of a new contract with government" that involved the creation of a safety net and a much stronger role for the federal government in the economy. He and Grunwald explore whether Obama's policies have the potential to create another paradigm shift that is "fundamentally a new kind of social reality, a political reality."

For more, including details on what was actually in the stimulus and how it reflected President Obama's broader agenda, check out the full video below:

 

Construction image via Shutterstock.com.

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