A Fighting Chance

COP was not the only force trying to get a better return for the taxpayer: members of Congress also clamored for greater transparency in Treasury negotiations and greater attention to the interests of the taxpayer. For example, US Representative Mary Jo Kilroy introduced a bill on July 16, 2009, that “would force TARP warrants to be sold in the open market rather than settled through private negotiations.” Colin Barr, “Goldman ‘Warrants’ Raves from Congress,” CNNMoney, July 22, 2009.

lost it all when the music stopped: In the wake of the financial crisis, many people blamed American consumers and government homeownership policies for the financial crisis. For example, on its top 25 list of “people to blame” for the financial crisis, Time magazine listed “American consumers” as one of the key figures because Americans have “enjoyed living beyond [their] means” for decades without regard for when it would end. “25 People to Blame for the Financial Crisis,” Time Lists, at http://content.time.com/time/specials/packages/completelist/0,29569,1877351,00.html. Along similar lines, some people have claimed that the financial crisis resulted from the Community Reinvestment Act and other government policies aimed at expanding homeownership. For example, Charles Krauthammer said these policies were “at the root of [the financial crisis],” as he relegated the role of lenders and banks in the financial crisis: “Were there some predatory lenders? Of course. But only a fool or a demagogue … would suggest that this is a major part of the problem.” Charles Krauthammer, “Catharsis, then Common Sense,” op-ed Washington Post, September 26, 2008. Similarly, “We hear a lot of blaming of the creditor, but it’s almost like we’re afraid to blame the consumer.… I would challenge really somebody find me somebody that a gun was held to their head to sign the documentation. It’s like we’re afraid to really admit that these folks went beyond their means.” Leslie Linfield quoted in Sara Murray, “Q&A: What the ‘Middle-Class’ Recession Means for Bankruptcies,” Real Time Economics (blog), Wall Street Journal, October 23, 2009. I have disputed this line of thinking more directly in the text, but it is worth noting that a great deal of evidence debunks the claim that affordable housing policies caused the crisis. For example: “While it is unquestionable that Fannie Mae and Freddie Mac held substantial amounts of subprime mortgages, and that their holdings of these securities played a significant role in their demise, the evidence in this paper refutes the claim that the affordable housing mandates were responsible for the subprime crisis.” Rubén Hernández-Murillo, Andra C. Ghent, and Michael T. Owyang, “Did Affordable Housing Legislation Contribute to the Subprime Securities Boom?,” Federal Reserve Bank of St. Louis, August 2012, 36. “… We find little evidence to support the view that either the CRA or the GSE goals caused excessive or less prudent lending than otherwise would have taken place.… In fact, the evidence suggests that loan outcomes may have been marginally better in tracts that were served by more CRA-covered lenders than in similar tracts where CRA-covered institutions had less of a footprint. Loan purchases by CRA-covered lenders also do not appear to have been associated with riskier lending.” Robert B. Avery and Kenneth P. Brevoort, “The Subprime Crisis: Is Government Housing Policy to Blame?,” Division of Research and Statistics Board of Governors of the Federal Reserve System, August 3, 2011.

too few people to make any real difference: “When viewed in light of the millions of foreclosure completions since 2007 and the large number waiting in the pipeline due to continued hardships from high unemployment rates and lower home values, HAMP has failed to make a significant dent in the number of foreclosures and does not appear likely to do so in the future.” COP report, December 2010, 133. In addition to criticizing Treasury for failing to reach the vast majority of homeowners with its foreclosure mitigation efforts, COP also expressed concern that the relief offered was only temporary. COP condemned “the timeliness of Treasury’s response to the foreclosure crisis, the sustainability of mortgage modifications, and the accountability of Treasury’s foreclosure programs.” COP report, April 2010. COP believed more of Treasury’s efforts should have been channeled toward “dealing with the crisis directly by addressing home mortgage foreclosures,” particularly in view of the relationship among housing, unemployment, and long-term economic growth. COP report, March 2009, 5; see also note, “actual policies were anemic.”