The American Spectator

When the history of the Great Economic Meltdown of 2008 is written, in-your-face shakedown groups like the Greenlining Institute will be held to account.

Greenlining, headquartered in Berkeley, California (where else?), is a left-wing pressure group that threatens nasty public relations campaigns against lenders that refuse to kneel before its radical economic agenda. Its principal goal is to push politicians and the business community to facilitate “community reinvestment” in low-income and minority neighborhoods.

The Greenlining name is a play on the unlawful practice of “redlining.” That’s when financial institutions designate areas, typically those with a high concentration of racial minorities, as bad risks for home and commercial loans. The Institute wants banks to give a green light to loans in these areas instead.

Recently profiled by John Gizzi, Greenlining uses carrot-and-stick tactics to blackmail public agencies, banks, and philanthropists to achieve its objectives. The Institute brags it has threatened banks into making more than $2.4 trillion in loans in low-income communities.

Was this a good idea?

Not according to University of Texas economist Stanley Liebowitz. He wrote that the current mortgage market debacle is “a direct result of an intentional loosening of underwriting standards — done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults.”

Liebowitz isn’t alone is pointing out that U.S. financial markets are now being asphyxiated by a terrible credit crunch that might have been avoided if lenders had refrained from doling out loans they ought to have known were doomed to default.

Activist groups were encouraged to agitate by the Carter-era Community Reinvestment Act, which enshrined in law a kind of lending protection racket. Banking regulators were given the power to make trouble for banks that failed to lend enough money to so-called underserved communities. Banks that paid enough — whatever that means — got left alone, but banks that didn’t, got their legs broken.

p>How much money is enough to satisfy the law? Even the Federal Reserve Board can’t say for sure. From the Fed’s online summary of the Act: br> /p>

The CRA requires that each depository institution’s record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution’s application for deposit facilities.

Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution’s individual circumstances.

br> One can almost imagine a CRA commissar saying, “It’d be a real shame if something happened to that nice bank of yours.” When in doubt about potential CRA liability, don’t risk committing a crime against diversity: make the loan. Or else.