Community Reinvestment Act: Smoking Gun! that’s killed (killing?) our Economy
I responded to JP’s comment yesterday, left on my post on the Treasury’s proposed trillion-dollars bailout to save our collective asses. Expanded it a bit here.
There’s a lot of talk around the ’sphere about the ongoing economic crisis and the causes thereof. It seems to me that our government, while trying to satisfy a bloc of politicians, stuck their regulatory fingers into the mechanisms of capitalism, infecting our banks and markets with forced socialism. My comment, from yesterday..
Can’t see your reasoning there, JP. We gave in to the incorrect, feel-good, politically correct sentiments and forced banks to make loans to people for homes that they couldn’t possibly afford. Now, because of greed and shortsightedness, and political correctness, and nascent socialism, the economy is tanking. Only a major miracle will save the thing now.
Socialism.Doesn’t.Work.
Carefully read this. Written in 1997; celebrating the 20th anniversary of the Community Reinvestment Act…the smoking gun. The root cause of what’s happening today.
The Community Reinvestment Act, pushed through by Democrat activists in 1977, signed into law by Jimmy Carter, ignored by regulators under Reagan, pushed into high gear during Clinton’s term, challenged by Republicans in 1994 (they lost that fight, btw) and now, we see the (sorry, Glen) chickens coming home to roost.
From that link: (I hate the forced italics of the blockquotes; eyestrain, much?)
Fighting to Survive
“While some banks recognized that the increased pressures had pushed them to make what turned out to be profitable loans, most resented the growing scrutiny of their performance and called for rollback of the CRA. When the Republicans gained control of Congress after the 1994 elections, bank lobbyists convinced them to make the Community Reinvestment Act a prime target. The prospects for survival of a meaningful CRA looked bleak as the confident Republicans, led by senators Richard Shelby (Alabama) and Connie Mack (Florida) and Florida Representative Bill McCollum, offered a series of innocuous-sounding “reforms.”
…
“The banks’ Republican allies offered three arguments to support their position, none of which could withstand serious scrutiny. First, they claimed that the CRA imposed a massive regulatory burden on small banks. While grossly exaggerated in any case, this claim was rendered obsolete by an overhaul of CRA regulations in early 1995. The revised regulations replaced an excessive emphasis on process and paperwork with a focus on actual performance, and drastically streamlined the process for banks with less than $250 million in assets.
“Second, CRA opponents claimed that it requires risky loans that could undermine a bank’s profitability and threaten its survival. Actually, the reverse is closer to the truth. The 1980s were marked by massive speculative lending to wealthy real estate developers and get-rich-quick schemers that resulted in the failure of more than two thousand banks and S&Ls. Yet not a single bank failure has been caused by making too many bad loans to disadvantaged borrowers. “
…
“The swell of grassroots support overwhelmed pressure from industry lobbyists and produced unanimous opposition by congressional Democrats to every proposal that would have weakened CRA. In addition, the Clinton administration never wavered from an early pledge to veto any bill containing such provisions. (Of course, since supporting the CRA required virtually no budgetary resources, it was easier for Clinton to take a strong stance.) When the dust of battle finally cleared at the end of 1996, the CRA emerged intact.”
Smoking gun, JP.
crossed from home
Oh..
Before some of the commentariat starts out crying RACIST!, the source photo from my little ‘chop is here.
It’s Clinton’s fault! lol! just like 9/11, Iraq, and Katrina. LOL
Bwahahahahaha. Did you even read what you quoted? It disproves the point you are desperately trying to make. This 30-year-old law is hardly the smoking gun for the current crisis. Do you actually think the poor have managed to milk $700 billion worth of bad mortgages out of the federal government? Bwahahahaha!
Eek! Poor people! They are so powerful, we never had a chance!
Greetings, Comrades!
Do we have an update on our new company, Peoples’ International Group (PIG) formerly known as AIG?
Just checking up on our new “ownership society,” yo.
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Hee hee hee haw haw haw!
Hee Haw!
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Hey Bacon, 700 Billion in mortgages? Try over 1 trillion in CRA related mortgages. DA.
cb
[…] my smoking gun, of […]
um … companies like Countrywide (mortgage servicing companies that wrote most of the subprime loans) aren’t subject to the CRA. Moreover the problem with the bad loans is the derivatives that repackaged them using models that couldn’t be fully understood. The problem here is the same as any financial crisis - companies getting overleveraged. It’s just that it went unchecked for so long that when it finally exploded - it “cratered” big financial institutions.
Actually, the changes to the CRA went into effect on January 31, 1995. They were requested by President Clinton in 1993 and were passed by the 102nd Congress.
The intent of the CRA was written into various laws and permeated the economic policies of our government for over 20 years. Those sorts of unsecured loans were willingly supported by Democrats, but as you can hear for yourself, Republicans tried to regulate the Freddie-Fannie proto-disaster. Democrats wouldn’t go along.
Because of the votes they get from offering the free stuff!