Nice title, I think it, in fact, gives a different insight as well. Peoples political opinions may be formed in much the same manner as their preferences to brands. “Well, the Democrats are about social justice and taking care of the poor — while the Republicans are about making money and business.” I find many of peoples political sensibilities reduced to this sort of simplistic thinking.

Therefore, when someone came up with a plan to protect the common people, it was obviously the Democrats!

Is there any reason for us to believe that forcing banks to buy insurance (basically after the fact) would negate the problems of moral hazard rather than exacerbate them?

Institutions were loaning money without adequate collateral, without adequate assessment of income (why weren't tax returns used? This seems like willful negligence on the part of the lending institutions) and without even checking for citizenship in some cases, from what I've heard.

All finance crises, from the Great Depression onward, involve overextension of credit. It doesn't cause the problem, but it inevitably creates a situation where people can't be responsible for their own behavior.

The Republicans do seem to be taking the high ground here, and people are underestimating Democratic complicity and overestimating Republican complicity. But both parties have very dirty hands. Bush actively supported this huge over extension of credit without adequate documentation. They've been playing speeches where he praised it on the radio. And I haven't heard anything coming out of either party yet which actually addresses the issues which caused this crisis. Meaning it will happen again in a decade or two.

I frequently count myself as extremely fortunate to have such wise friends as y'all. (No pun intended in Ryan's case.)

Mike: Peoples political opinions may be formed in much the same manner as their preferences to brands.

I agree entirely, Michael: and the same may be true of religion, family*, etc. Instead of adhering to a fixed set of ethics, we sometimes get backed into defending "our team" when they, or at least that choice, really ought to be condemned.

(* I often think of the mom who defends a criminal child -- sometimes even a serial killer -- because he's "family". I suspect such people are limited in their understanding of moral options: It's possible love someone without agreeing with each thing they do (or anything much they do, really), but if that's how you process your own valuation, its natural to project that outwards.)

Ryan: Is there any reason for us to believe that forcing banks to buy insurance (basically after the fact) would negate the problems of moral hazard rather than exacerbate them?

Ryan, if I'm reading you right here, in some ways, you've become even more conservative that I would have thought. I suspect your concern here is entirely justified.

Congrats on getting my last name, btw. You have a gift for research, I guess. (or looked at my email, maybe.)

I haven't really looked through the 2005 reforms to the CRA, incidentally, so I don't know what they all involve. I may be missing something crucial there. I don't have much time so some quick notes;

The Senate Banking Committee estimted that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries.
from wikipedia

The thing about subprime loans- while there may have been resistance to legislation like CRA, there was a push from within the mortgage industry to fund subprime loans. They were profitable upfront. There were a number of complaints from within the mortgage industry that assessments were inflated, for instance, in order to get a specific loan approved. So subprime loans seemed to be funded by companies like Countrywide and their affiliated fronts far in excess of what would be expected given a rational and properly informed market.

One problem related to Clinton's CRA which I just read but seems legit wasn't in relation to the need to fund minority loans, but instead that it reduced the amount of cash an agency needed to have onhand to back a loan. That seems a reasonable criticism of Clinton's CRA.

Related rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market.[5] Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.[10]

Here's one speech Bush gave regarding the mortgage industry. I couldn't find the one I heard originally where he says something to the tune of "there's no reason that a first time homebuyer can't have a house that's just as nice as ... someone wealthier" or something to that tune

October 2002