November 17, 2008

Stop Blaming the Community Reinvestment Act

The right wing talking points, blathered by establishment media pundits, say that all those mortgages forced upon poor black people by the Community Reinvestment Act caused the bubble that caused the financial mess. Basically, it's all Bill Clinton's fault.

Well, Bill Clinton might share the blame as leader of the corporate wing of the Democratic Party, but it wasn't the Community Reinvestment Act that did it; that law was enacted in 1977. According to Aaron Pressman who blogs on Newsweek:

University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations.

Hard for CRA to be the majority of the subprime problem when it wasn't even a majority of the subprime market. CRA loans had more regulatory supervision, required recipients to receive counseling before and after receiving the loans, CRA Banks were more than twice as likely as other lenders to retain originated loans in their portfolio and the CRA loans were lower intrest rates making them easier to pay (less subject to defaults). This is what the Traiger & Hinckley Study finds (PDF file here).

Paul Krugman provides us the data to show it also wasn't Fannie and Freddie. As I've explained, the hyper profits being made on Wall Street by selling bonds backed by everything, including new mortgages, and all the derivatives of those bonds (basically things like insurance on the bonds, bets on future prices of the bonds and the insurance, and other crazy poker game gizzmoes), generated GREAT DEMAND on Wall Street for new mortgages (like Ross Perot's great sucking sound). When you build profits on a house of cards, you can predict the outcome.

The regulators in Washington let the bubble grow and should have predicted the outcome. They are truly to blame, because regulators should know something about a history rife with speculative booms and busts.

And we know something about insiders walking off with the windfall profits. Our mission, if we choose to accept it, is to claw back those profits from the swindlers.


BusinessWeek blog, Community Reinvestment Act had nothing to do with subprime crisis, Aaron Pressman, September 29, 2008.



libhom said...

The far right is so obsessed with defending their ideology that they have lost all interest in solving the nation's problems.

GDAEman said...

Perhaps they, along with Palin, can be isolated in the coming years.