Rehabilitating the economy-wrecking Community Reinvestment Act.
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In the absence of any evidence for boosting CRA enforcement efforts, the paper argues, “The appropriate response to the crisis is not to weaken the CRA; it is rather to promote robust application of the CRA so that low-income households and communities have access to responsible financial services that truly meet their needs.”
CRA defenders often cite the comments of Federal Reserve Governor Elizabeth A. Duke and Janet Yellen, president of the Federal Reserve Bank of San Francisco, who bemoans the “tendency to conflate the current problems in the subprime market with CRA-motivated lending.”
Supporters also look to plenty of politicians and regulators, even Republican appointees, who remain CRA true believers. One of them is Sheila Bair, head of FDIC: “I want to give you my verdict on CRA: NOT guilty.”
Bair threw her lot in with the financial affirmative action crowd a long time ago. In March she received the 2008 Gale Cincotta NHS Neighborhood Partnership Award from the Chicago office of Neighborhood Housing Services. The award is named after Gale Cincotta, whom some call the “mother of the Community Reinvestment Act” because she reportedly led the effort to create the law that President Carter signed in 1977. Cincotta founded the Saul Alinsky-inspired National Training and Information Center (NTIC), which recently agreed to fork over $550,000 to the U.S. government to make claims that it misused federal grant money go away.
Another Republican defender of the CRA is bank regulator John C. Dugan, Comptroller of the Currency. “CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the market place,” he said.
The sophistry-packed Treasury white paper insists the CRA could not have “caused an explosion in bad subprime loans more than 25 years after its enactment.” It also throws out a red-herring of a statistic from the Federal Reserve which found that only 6% of all “the higher-priced loans were extended by the CRA-covered lenders to lower income borrowers or neighborhoods in the local areas that are the focus of CRA evaluations.” What about all the other loans that government policies encouraged or forced banks to make to borrowers who didn’t have the financial wherewithal to buy a home?
University of Texas economist Stanley Liebowitz 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.” Economist Thomas Sowell just wrote an entire book, The Housing Boom and Bust, on the destructive effects of government policies, including the affordable housing “crusade” and the CRA, on housing markets.
Sowell and Liebowitz are hardly alone is pointing out that U.S. financial markets have been 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. Even former Federal Reserve governor Lawrence B. Lindsey, a steadfast defender of the CRA, admits that the law “did contribute to a downgrading of credit standards.”
Banks felt the heat from community organizers and CRA examiners and instead of fighting, they made loans they shouldn’t have and paid out millions of dollars in protection money to ACORN and its brethren.
The advent of Mortgage-Backed Securities (MBSs) by Fannie Mae and Freddie Mac gave banks an added incentive to write loans because they knew they could dump their dubious mortgages onto Fannie and Freddie investors who counted on a government bailout if things got rough. These MBSs—which should have been called MJBs (Mortgage Junk Bonds)— helped to spread the subprime contagion across America and the world.
These securities received strong bond ratings from credit agencies in part because Fannie and Freddie, which place politics over profit-making, had long enjoyed an implied guarantee from Uncle Sam. Accordingly, investors bought them with confidence.
The Obama administration’s new regulatory plans don’t call for anything to be done about Fannie and Freddie apart from navel-gazing. It calls for various branches of the government to talk about what, if anything, to do about them.
Don’t hold your breath waiting for reform of the two government-sponsored enterprises that have provided extraordinarily well paid sinecures for incompetent and corrupt Democratic politicians and courtiers (e.g. Franklin Raines, Jamie Gorelick, Jim Johnson) in recent years.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?
H/T to National Review Online