H Clark’s economic wisdom

January 25th, 2008

In commenting on Wednesday on the US sub-prime mortgage shambles H Clark could not refrain from one of her usual anti-US digs, this time about the “predatory behaviour” of the sub-prime lenders. She was probably relying on her equally sophomoric colleague Dr Cullen.

Cullen’s speech notes included:

“We also know that the excesses that have led to the not-yet-recession in the US have mostly not occurred here. While household debt is a problem in New Zealand and the US, the predatory behaviour of subprime lenders is a uniquely American phenomenon.”

Did he know the contribution of Labour-type law to the shambles?

The [Federal] Community Reinvestment Act of 1977 forces lenders to offer credit throughout their entire markets. It stops them from “redlining” or steering clear of poor credit risk areas and borrower categories.

Clark and Cullen could properly critcise the subsequent packaging for bulk sale of those risky loans to credulous professional investors. Somehow they were considered transmuted into gold by the packaging.

Filed under Commercial, Economy, Politics

Comments

As always, the socialists appear to have it backwards:

BasePoint Analytics LLC, a recognized fraud analytics and consulting firm, analyzed over 3 million loans originated between 1997 and 2006 (the majority being 2005-2006 vintage), including 16,000 examples of non-performing loans that had evidence of fraudulent misrepresentation in the original applications. Their research found that as much as 70% of early payment default loans contained fraud misrepresentations on the application. Source here

If anything, lenders are more the victims than perpetrators in all this.

Thanks for posting this. I didn’t know about the Federal Community Reinvestent Act and this knowledge sheds light on the whole debacle.

One thing that I have not seen mentioned in relation to this is that NZ is somewhat sheltered by high interest rates.

Reason being is that interest rates jump in increments of 0.25 base percentage points. When people borrow, they gear themselves against the interest they will be paying.

If your base interest rate in NZ is 10%, then a 0.25% interest rate increase has less impact on you (proportionally) than a 0.25% increase would have if your base interest rate was only (say) 4%.