Barry Ritholtz's Offer

I don't read Barry Ritholtz's blog, so I don't know much about how he thinks. I did skim his book, which I found very confused about what it means to explain something. He pridefully notes on his blog 30 people or groups to blame for the financial crisis (one factor being Congress, so perhaps all in there are 100 groups at fault). That's not an explanation. A useful way of looking at the data compresses it, so you can understand more with less. Merely cataloging everyone important who did not anticipate an event that by definition was not anticipated(a decline in asset values), is pointless.

He takes his epistemelogical confusion to the next level by offering to take one side of a $10-100k wager, on the proposition 'Is the CRA significantly to blame for the credit crisis?" This would be decided by "a fair jury." He is arguing for the negative. Anyone who thinks 'a debate' has ever settled a contentious issue is rather naive. I suppose most of this debate would fall under the 'what do you mean by significant' umbrella, where he would retreat to the meaning 'necessary and sufficient', which no one asserts.

You can read about how the CRA morphed into a monster in this piece by Stanley Kurz:

Banks merger or expansion plans were rarely held up under CRA until the late 1980s, when ACORN perfected its technique of filing CRA complaints in tandem with the sort of intimidation tactics perfected by that original “community organizer” (and Obama idol), Saul Alinsky

So the CRA was a tactic by nonprofits looking to redistribute wealth to their constituents. Classic politics. But then the CRA was used to gather pledges for lending targets, and aid to non-profits, which were then used to pay the measely down payments needed, and then the bank lenders (like Golden West) and homebuilders would profit. They in turn, would give grants to nonprofits, and legislators encouraging these activities. The naked self-interest in this game, all under the pretext of helping the little guy, is pretty obvious.

Now, CRA commitments were in the Trillions of dollars. You don't spend a trillion dollars without creating a lot of vested interests, and the same logic that underlay the CRA underlay the arguments by the Congressional Black Caucus in keeping Fannie and Freddie from greater oversight. The same Boston Fed study used to rationalize greater CRA lending, was used to rationalize lower, even absent down payments. The one exogenous mover in this whole mess was the thought that increasing home ownership was good business, in that it lead to happier, wealthier communities. This derived from the fact that when people don't lend purely out of discrimination, you can rectify a moral wrong costlessly the way breaking the color barrier in baseball both made the game better, made the first movers better, and was the right thing to do.

Unfortunately, they made an error in assuming bankers leave money on the table because of their irrational fear/hatred of minorities. This insidious assumption, and how it played into the zeitgeist, are discussed admirably in Stan Liebowitz's piece, Anatomy of a Train Wreck.

The CRA was insignificant in the following sense. I'm sure that without the CRA, another vehicle for promoting a political patronage system, focused on race and masked as justice, would have been found. That home buyers, investors, rating agencies, academics, legislators (Rep and Dem), and regulators, all agreed that this initiative was a good idea highlights how the real common factor was the idea that pure, inefficient discrimination was prevalent. That's the only way you can change an equilibrium level of homeownership without causing a mess.