The activist boosters of the Community Reinvestment Act aren’t wholly to blame for the meltdown on Wall Street, but they played a starring role.
With wanton disregard for the economic well being of America, a decade ago the social justice entrepreneurs of the ultra-leftist Association of Community Organizations for Reform Now (ACORN) let Americans know their strategy for bringing equality of result to the housing market — at all costs.
In a circa 1999 document, “To Each Their Home: Success Stories from the ACORN Housing Corporation,” the ACORN affiliate called the American Dream a sham and bragged about undermining banks’ underwriting standards.
The brochure acknowledged there may be scattered “stories of hope and success” in ACORN-targeted communities, but “they also belie the supposition that if you simply work hard, sacrifice and save, you can easily buy a home of your own.” (The document is available here.)
ACORN Housing took credit for developing “several innovative
strategies” to get around pesky traditional lending guidelines,
which were unfair because they “were geared to middle class
Instead of using passé measures of creditworthiness such as, say, credit history and having an adequate income, ACORN convinced lenders to adopt “more flexible underwriting criteria that take into account the realities of lower income communities.” Henceforth, some banks serving inner cities would accept “less traditional income sources such as food stamps.” (See Foundation Watch, November 2008.)
It’s unclear why ACORN stopped there. Perhaps the rent-a-mob group, renowned for occupying banks, disrupting legislative hearings and emergency medical facilities, surrounding the homes of politicians and CEOs, and annoying trapped motorists into paying tribute as part of its “toll roads” program, could have convinced narrow-minded bankers to accept another financial innovation. How about accepting “Monopoly” money for down payments?
Financial tomfoolery like including food stamps on loan applications was encouraged by the Carter-era Community Reinvestment Act (CRA), which opened banking to ACORN-style agitation that over time weakened underwriting criteria and helped to alter the culture of financial institutions in the U.S. This 1977 law, whose enactment ACORN lobbied for, punishes lenders for limiting loans to wealthier, more creditworthy markets, a practice called “redlining.” It gives banking regulators discretionary authority to make trouble for banks that fail to lend enough money to “underserved” minority communities.
After the CRA went into effect, Saul Alinsky-inspired groups such as ACORN and the Greenlining Institute used the law to get into the shakedown business. Rev. Jesse Jackson egged them on at an ACORN “banking summit” in 1992, asking rhetorically, “Why did Jesse James rob banks? Because that’s where the money was.”
The shaking down of lenders intensified when then-Treasury Secretary Robert Rubin presided over the Clinton administration’s effort to put the CRA on steroids. Banks began to make risky subprime loans and Fannie Mae and Freddie Mac aggregated them for sale in the secondary market as mortgage-backed securities. These practices made it easier for banks to give in to ACORN’s demands to originate more and more doomed mortgages because they knew they could offload their high-risk debt on quasi-governmental suckers Fannie and Freddie, which were under intense political pressure to service the subprime market.
Economists like Stanley Liebowitz of the University of Texas blame the CRA for helping to cause Wall Street’s current problems. He writes 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 is hardly alone in pointing out that U.S. financial markets are now being strangled 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.
Of course, even now as the economic fallout from the collapse of the housing market spreads, getting class-warriors to admit they’re wrong about anything is an exercise in futility. Liberals, who reflexively defend ACORN, have twisted themselves into rhetorical pretzels in recent weeks while defending the catastrophic economic egalitarianism of the CRA.
An ardent proponent of the CRA, ACORN benefactor, organizer, and trainer Barack H. Obama, Esq., contributed to the increasingly hostile environment for banks when he represented the plaintiffs in the 1995 class action lawsuit Buycks-Roberson v. Citibank. The suit demanded that the bank grant mortgages to an equal percentage of minority and non-minority mortgage applicants. The bank settled the case three years later and reportedly agreed to beef up its lending to unqualified applicants.
ACORN refuses to acknowledge the role that it and the CRA played in the current crisis on Wall Street, and as recently as Jan. 21 Obama said in a candidates’ debate that the CRA should be more strictly enforced.
Michael Ettlinger of John Podesta’s Center for American Progress feverishly derides CRA critics as “antigovernment ideologues,” while Business Week’s Aaron Pressman calls them “know-nothings.” Not to be outdone, ACORN ally House Financial Services Committee chairman Barney Frank (D-Mass.) says criticism of the law is tantamount to attacking poor people and minorities. Cynthia Tucker of the Atlanta Journal-Constitution concurs, arguing that pointing out the flaws of the CRA constitutes “playing the race card.”
ACORN’s overall strategy has a name. It’s called the “Cloward-Piven Strategy” of manufactured crisis (named after two anti-capitalist sociologists) and it calls for packing the welfare rolls to encourage dependency on the government and to overload it with financial demands in order to hasten the collapse of American capitalism.
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