New study confirms that the 2008 subprime crisis...

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Posted 2/11/2013 by lynlam in NSBR Board
 

lynlam
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Posted: 2/11/2013 6:57:02 AM
Was caused by the CRA.

CRA clearly did lead to risky lending.


CRA rules were strengthened in 1995 by none other than Bill Clinton.

So when Obama trots out his "inherited the worst economic crisis since the Great Depression" line tomorrow night, we all know now that he inherited it from his buddy Bill, not George Bush.

I only post this b/c I have been asserting this for years...that the fictional Bush "deregulations" did not cause the collapse. Progressive feel good policies did.





"We demand entire freedom of action and then expect the government in some miraculous way to save us from the consequences of our own acts... Self-government means self-reliance." Calvin Coolidge

Lynlam, the second-tier Pea, paid (except it appears she is not) political shill.

*maureen*
Bad Wolf

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Posted: 2/11/2013 7:01:03 AM
While I am not the least bit surprised, I think pointing fingers serves no purpose. We need to come up with solutions not wallow in the muck of accusation. The economy will never get better until we put the partisan bullcrap aside and all work together.

Pretty In PeaNK

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Posted: 2/11/2013 7:12:14 AM
True Maureen, but until past mistakes are understood completely, they will be repeated. We can't just burry our head in the sand and say, "la la la la" and hope it never happens again.


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Gem Girl
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Posted: 2/11/2013 7:12:51 AM
You're both correct. And...

I believe that we have a pretty informed group on this board, but I think that the average U.S. citizen, in general, probably doesn't even know about the C.R.A. Granted, I have a generally sad notion about how much our country's people read, follow newscasts that aren't of their own bent, etc.


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WannaPea
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Posted: 2/11/2013 7:27:45 AM

True Maureen, but until past mistakes are understood completely, they will be repeated.
Very true. Here's another article on Bush's contribution to the mess:
White House Philosophy Stoked Mortgage Bonfire
Just a blurb from the article:

But the story of how we got here is partly one of Mr. Bush's own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand home ownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent, and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.
There are plenty of dirty hands in that mess.


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M in Carolina
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Posted: 2/11/2013 7:49:10 AM
Economics ARE very cyclical, and if you go back and look at our nation's economic growth since the early 1800s till now, you'll see it's very much a roller coaster ride. Men try their best to keep economic growth straight or gaining, but every 20 years or so there's some sort of recession and even large depressions--everyone remembers The Great Depression, but there were depressions almost as severe in the 1880s.

No single president can claim that HIS fiscal policy has done this or that to the economy because it takes more than 4 years for the cycle to even show what the sitting president's actions were, and there's a lot of spillover from the last person in office. As in Bill Clinton inherited George H.W. Bush's tax hikes and other policies, then Clinton tried to change them, then George W. Bush tries to fix the issues, which are now going to be a lot more complicated since we went to war.

Now we're officially out of "the depression" and we'll see what happens in the next few years.

I'll tell you one thing that I've noticed recently-- I don't work because of my health, and dh is the only breadwinner. We are comfortable, but nobody could really call us "upper middle class" We rent (we were fine and debt free until I got really sick and have had well over a million dollars in medical debt even though we've always had "decent" insurance) Now dh is at his dream job at Cisco and is paid about the same as he was being paid in Chicago for the past 8 years we were there.

Except this January, dh said when everyone in his team checked their first paychecks for the year, you could hear a very audible sigh and grumbling going around the building. We went from a 30something% bracket to 45%!!! Dh had worked a lot of overtime in preparation of us moving, but the taxes took almost all of that and a large chunk out of his salary. We only own one car, and it's paid off. We're paying off all the debt that we can, and we're almost done.

Still, it feels like we're in quicksand. The theme song to Good Times comes to mind---"Just keeping our heads above water"

I think the American dream that our parents and their parents enjoyed and were able to buy houses, trust in the equity of their home purchases and retire comfortably is dying. I hope it doesn't, but it sure seems that way more and more.



M in Carolina
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Posted: 2/11/2013 7:49:26 AM
Economics ARE very cyclical, and if you go back and look at our nation's economic growth since the early 1800s till now, you'll see it's very much a roller coaster ride. Men try their best to keep economic growth straight or gaining, but every 20 years or so there's some sort of recession and even large depressions--everyone remembers The Great Depression, but there were depressions almost as severe in the 1880s.

No single president can claim that HIS fiscal policy has done this or that to the economy because it takes more than 4 years for the cycle to even show what the sitting president's actions were, and there's a lot of spillover from the last person in office. As in Bill Clinton inherited George H.W. Bush's tax hikes and other policies, then Clinton tried to change them, then George W. Bush tries to fix the issues, which are now going to be a lot more complicated since we went to war.

Now we're officially out of "the depression" and we'll see what happens in the next few years.

I'll tell you one thing that I've noticed recently-- I don't work because of my health, and dh is the only breadwinner. We are comfortable, but nobody could really call us "upper middle class" We rent (we were fine and debt free until I got really sick and have had well over a million dollars in medical debt even though we've always had "decent" insurance) Now dh is at his dream job at Cisco and is paid about the same as he was being paid in Chicago for the past 8 years we were there.

Except this January, dh said when everyone in his team checked their first paychecks for the year, you could hear a very audible sigh and grumbling going around the building. We went from a 30something% bracket to 45%!!! Dh had worked a lot of overtime in preparation of us moving, but the taxes took almost all of that and a large chunk out of his salary. We only own one car, and it's paid off. We're paying off all the debt that we can, and we're almost done.

Still, it feels like we're in quicksand. The theme song to Good Times comes to mind---"Just keeping our heads above water"

I think the American dream that our parents and their parents enjoyed and were able to buy houses, trust in the equity of their home purchases and retire comfortably is dying. I hope it doesn't, but it sure seems that way more and more.



Shih Tzu Mommy
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Posted: 2/11/2013 7:58:45 AM

Except this January, dh said when everyone in his team checked their first paychecks for the year, you could hear a very audible sigh and grumbling going around the building. We went from a 30something% bracket to 45%!!!

That is just not possible without a substantial raise. And I am going to assume you mean Federal and State since there is no such thing as a 45% Federal bracket.
This is single/married/HOH

33%

$183,250 to $398,350

$223,050 to $398,350

$203,150 to $398,350



35%

$398,350 to $400,000

$398,350 to $450,000

$398,350 to $425,000



39.6%

$400,000 and up

$450,000 and up

$425,000 and up



Dog people are a special breed!

*maureen*
Bad Wolf

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Posted: 2/11/2013 8:01:29 AM

True Maureen, but until past mistakes are understood completely, they will be repeated. We can't just burry our head in the sand and say "la la la la" and hope it never happens again.


Agreed, but this post isn't about learning from where we came, the op was about pointing fingers at democrats. I think that it has been agreed previously that the CRA was detrimental to our banking industry.


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Posted: 2/11/2013 8:25:28 AM

Agreed, but this post isn't about learning from where we came, the op was about pointing fingers at democrats.


Yep.

SURPRISE! SURPRISE! SURPRISE! coming from lynlam.

NOT!


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CnBsmommy
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Posted: 2/11/2013 8:29:09 AM
I'm actually surprised they had to do a study to confirm this...it was one of those obvious outcomes..

PunchPrincess

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Posted: 2/11/2013 8:45:12 AM
I'm shocked, shocked I tell ya that the Investor's Business Daily found that housing all those "poor, Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door! " Etc.

Now that we know that poor people caused the meltdown, I guess we don't have to investigate the JP Morgan emails. sub-prime scam

This from the article

New York's top prosecutor is suing US banking giant JP Morgan, alleging that its Bear Stearns unit defrauded investors by selling billions of dollars worth of securities backed by mortgages they knew -- or should have known -- were highly likely to default.

The case filed by Attorney General Eric T. Schneiderman late Monday is the first action to be brought by the task force set up by President Barack Obama in January to investigate and prosecute alleged misconduct that contributed to the 2008 global financial crisis, the Associated Press reported today.


There are lots of people to blame for the sub prime crisis. Lynlam wants us to blame Bill Clinton and the people who bought homes out of their reach because -- surprise! -- the bank/brokers told them they qualified for the loan. I just read a thread here about buying first homes. Don't remember the Pea who said it but someone said they sold their first house and "made" $100,000 profit. That Pea is every bit as much to blame as the poor schmuck who bought a 3br/3ba/3car house that is now in foreclosure, only he's going to lose his home but the Peas who bought up are save and secure while blaming others.

Now I'm off to read about the Pope's golden parachute.


<*********************************************************************>

PunchPrincess ( def. A long, long time ago when I first started scrapping I discovered punches -- round, square, squiggles, cars, etc. You name it. Like coat hangers they multiplied, under the bed I think until they were threatening to take over that precious space that we all covet and refuse to cede to other family members. Thus I became PunchPrincess. )


jacqab
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Posted: 2/11/2013 9:21:15 AM

So when Obama trots out his "inherited the worst economic crisis since the Great Depression" line tomorrow night, we all know now that he inherited it from his buddy Bill, not George Bush.

I only post this b/c I have been asserting this for years...that the fictional Bush "deregulations" did not cause the collapse. Progressive feel good policies did.

Yep.

And isn't it interesting that this study has been out since Dec. 20, yet for some reason the national media has yet to pick it up?



______________________________________________________________________________

Before voting, read Thomas Sowell's Basic Economics: A Common Sense Guide to the Economy

Global warming brings prosperity, population growth, and relatively good health, as disasters go, it's the one we should pray for.
What is the worst that could happen? 1. It might end. 2. The ice caps might melt entirely.
But the True Believers would have us plunge ourselves into global poverty by breaking down the great world economic system in order to prevent a "disaster" that people in 1500 would have prayed for.

There are actual disasters that deserve far more of our time and attention.




Dalai Mama
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Posted: 2/11/2013 9:32:36 AM

And isn't it interesting that this study has been out since Dec. 20, yet for some reason the national media has yet to pick it up?
I think the answer to that might be in the study, if we could actually find a copy of it. Judging from the quotes used in the article, I would guess that the study isn't as earth shattering as IBD makes it out to be.


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jacqab
AncestralPea

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Posted: 2/11/2013 9:35:08 AM

While I am not the least bit surprised, I think pointing fingers serves no purpose. We need to come up with solutions not wallow in the muck of accusation. The economy will never get better until we put the partisan bullcrap aside and all work together.

So how is this problem going to be solved if you don't know the causes or even admit or agree on a certain cause?

The economy is not going to get better if they keep providing 'solutions' based on a faulty premise.


Very true. Here's another article on Bush's contribution to the mess:
White House Philosophy Stoked Mortgage Bonfire
Just a blurb from the article:

And this entire article is a perfect example of blame on a faulty premise.

NY Times is out to blame Bush (and pointing fingers and wallowing in the muck of accusations) as if this all started in 2001, yet refuses to look past their own bias.

Of course being 2008 this is all they could admit to,

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them - an old prep school buddy - pronounced the companies sound even as they headed toward insolvency.


but to be so far from the truth it's really laughable.



______________________________________________________________________________

Before voting, read Thomas Sowell's Basic Economics: A Common Sense Guide to the Economy

Global warming brings prosperity, population growth, and relatively good health, as disasters go, it's the one we should pray for.
What is the worst that could happen? 1. It might end. 2. The ice caps might melt entirely.
But the True Believers would have us plunge ourselves into global poverty by breaking down the great world economic system in order to prevent a "disaster" that people in 1500 would have prayed for.

There are actual disasters that deserve far more of our time and attention.




*maureen*
Bad Wolf

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Posted: 2/11/2013 10:00:33 AM

So how is this problem going to be solved if you don't know the causes or even admit or agree on a certain cause?



You can say "CRA caused the banking industry to have serious financial issues." You don't have to say "Bill Clinton caused it. It is possible to agree that an idea was a poor one without dragging the conversation through the political mud.

jacqab
AncestralPea

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Posted: 2/11/2013 10:10:19 AM

Agreed, but this post isn't about learning from where we came, the op was about pointing fingers at democrats. I think that it has been agreed previously that the CRA was detrimental to our banking industry.

There is no agreement that the CRA was detrimental. In fact many like like Krugman think that it had no effect.

http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/

It was deeply depressing to see Raguram Rajan write this:

The tsunami of money directed by a US Congress, worried about growing income inequality, towards expanding low income housing, joined with the flood of foreign capital inflows to remove any discipline on home loans.

That's a claim that has been refuted over and over again. But what happens, I believe, is that in Chicago they don't listen at all to what the unbelievers say and write; and so the fact that those libruls in Congress caused the bubble is just part of what everyone knows, even though it's not true.

Just to repeat the basic facts here:

1. The Community Reinvestment Act of 1977 was irrelevant to the subprime boom, which was overwhelmingly driven by loan originators not subject to the Act.




And the Obama administration certainly does not agree that it was detrimental,

obama-community-reinvestment-act-low-income-loans

Despite new evidence the Community Reinvestment Act led to riskier lending and played a key role in the subprime mortgage crisis, the Obama administration is broadening the anti-redlining regulation's authority and scope, spooking bankers.



______________________________________________________________________________

Before voting, read Thomas Sowell's Basic Economics: A Common Sense Guide to the Economy

Global warming brings prosperity, population growth, and relatively good health, as disasters go, it's the one we should pray for.
What is the worst that could happen? 1. It might end. 2. The ice caps might melt entirely.
But the True Believers would have us plunge ourselves into global poverty by breaking down the great world economic system in order to prevent a "disaster" that people in 1500 would have prayed for.

There are actual disasters that deserve far more of our time and attention.




look4angel
StuckOnPeas

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Posted: 2/11/2013 10:15:25 AM
I'd believe this article a whole lot more if these weren't the other articles posted on the same editorials as the one Lynlam posted her's from. It kind of shows you how this paper leans: wacko right
IBD Editorials
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busypea
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Posted: 2/11/2013 10:16:28 AM
The CRA has never required lending to people who are not creditworthy. Period. If banks chose to use that as an excuse, that is on the banks, not the CRA or any presidential administration.

jodster70
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Posted: 2/11/2013 10:18:19 AM
I'm glad that there's some people acknowledging that the responsibility for this mess of an economy doesn't solely rest on the shoulders of President Bush, and that it in fact did start under President Clinton.

I've believed that the CRA was the root of the crisis for years. Good article.


**Jody**

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jeanne.b
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Posted: 2/11/2013 10:32:46 AM
For your futher reading enjoyment:

Rebuttal to NBER paper

Jeanne

jacqab
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Posted: 2/11/2013 10:39:49 AM

I think the answer to that might be in the study, if we could actually find a copy of it. Judging from the quotes used in the article, I would guess that the study isn't as earth shattering as IBD makes it out to be.

Copy is here:

http://www.nber.org/papers/w18609

Have to pay 5 buck though unless you qualify for the free one.

This thread has a link to an ungated copy.

http://marginalrevolution.com/marginalrevolution/2012/12/did-the-community-reinvestment-act-cra-lead-to-risky-lending.html


______________________________________________________________________________

Before voting, read Thomas Sowell's Basic Economics: A Common Sense Guide to the Economy

Global warming brings prosperity, population growth, and relatively good health, as disasters go, it's the one we should pray for.
What is the worst that could happen? 1. It might end. 2. The ice caps might melt entirely.
But the True Believers would have us plunge ourselves into global poverty by breaking down the great world economic system in order to prevent a "disaster" that people in 1500 would have prayed for.

There are actual disasters that deserve far more of our time and attention.




Krazyscrapper
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Posted: 2/11/2013 10:53:50 AM
All the CRA did was try and eliminate a form of discrimination in redlining. The fact that greed raised its ugly head on both sides of loan process was unfortunate to say the lease.

Add to that the repeal of the Glass-Steagall Act pushed for by Phil Gramm, who I believe is a Republican, and yes signed by Bill Clinton.

Then you had Bush with his tax cuts, fighting two wars, and spending for Medicare Coverage was it B?

All combinded casued the worse recession in 70 years. It was a perfect storm.

By the way, I believe Bill Clinton, in one of his speeches, took responsibility for his part in what happened.

What happened was not as simple as lynlam wants one to believe.


Maryland
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Posted: 2/11/2013 11:03:28 AM
I agree with busypea.

*Erin
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Posted: 2/11/2013 11:24:14 AM
Interesting paper Jeanne, thank you.



maddiesmum
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Posted: 2/11/2013 12:03:54 PM

jacqab
AncestralPea

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Posted: 2/11/2013 12:10:52 PM

You can say "CRA caused the banking industry to have serious financial issues." You don't have to say "Bill Clinton caused it. It is possible to agree that an idea was a poor one without dragging the conversation through the political mud.


And neither did George Bush cause it like the NY Times article claims:

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent - and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.


yet it's still trotted out today and even used by the Obama administration as the truth.



The CRA has never required lending to people who are not creditworthy. Period. If banks chose to use that as an excuse, that is on the banks, not the CRA or any presidential administration.

Except that the CRA and it's enforcement changed from the initial law.

From the report:

Initially, the CRA did not specify how the objective of serving community needs was to be accomplished. Implementation was left to regulatory agencies, which established several assessment factors intended to reflect the performance of a financial institution in determining community credit needs; (i) marketing of credit; (ii) participating in community development; (iii) maintaining branch offices; and (iv) avoiding discriminatory credit policies.

Supervisory agencies were explicitly required to assess an institution's record in meeting the credit needs of low- and moderate-income neighborhoods. Supervisors assessed CRA performance in formal onsite examinations from which a composite rating was determined. The ratings from this process were confidential until 1989. However, following heightened public attention to the volume and complexity of CRA issues, Congress amended the act in 1989 to require the public
release of CRA ratings.

Subsequent complaints from community groups that the CRA was ineffective led the regulatory agencies to issue new guidelines that based CRA evaluation scores primarily on how well an institution was helping to meet the credit needs of local communities. Specifically, in 1995, the regulators introduced three specific performance tests: (i) a lending test; (ii) an investment test; and (iii) a service test. The institution's compliance with the CRA is evaluated by examiners according to the three performance tests.




It's those exams that the study cites in the conclusion that contributed to risky lending .




Did the Community Reinvestment Act (CRA) Lead to Risky
Lending?


Yes, it did. We use exogenous variation in banks' incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on
lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tractmonth
that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every
quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.








______________________________________________________________________________

Before voting, read Thomas Sowell's Basic Economics: A Common Sense Guide to the Economy

Global warming brings prosperity, population growth, and relatively good health, as disasters go, it's the one we should pray for.
What is the worst that could happen? 1. It might end. 2. The ice caps might melt entirely.
But the True Believers would have us plunge ourselves into global poverty by breaking down the great world economic system in order to prevent a "disaster" that people in 1500 would have prayed for.

There are actual disasters that deserve far more of our time and attention.




WannaPea
No Peas for you ! Come back one year!

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Posted: 2/11/2013 12:36:07 PM

And neither did George Bush cause it like the NY Times article claims
I think you misunderstand the point of me posting the article. I agree with you-there is no one person or one policy that caused this. I personally think there are some people whose negligence should have resulted in jail time.

As I said, plenty of dirty hands to go around and no one party can claim they are blameless in the matter.


Cop's wife - Mom to one
"The invisible and the non-existent look very much alike." ~ Delos B. McKown

JBeans
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Posted: 2/11/2013 12:56:59 PM

As I said, plenty of dirty hands to go around and no one party can claim they are blameless in the matter.


This bears repeating. Issues under one administration may have been the catalyst, but a further issues from another administration compounded it.

I think there are many dirty hands in both parties.


Well Peas, I believe this thread has gone Thrusday.
"The Pot has not just met the Kettle, they are getting jiggy on the top of the stove." -Lanus
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