Posted by
Always To The Right on Friday, November 28, 2008 11:46:32 PM
The Community Reinvestment Act is to blame for the financial crisis,
but it so powerfully serves Democrats' interests that they'll do
anything to protect it — including revising history.
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The CRA coerces banks into making loans based on political
correctness, and little else, to people who can't afford them. Enforced
like never before by the Clinton administration, the regulation
destroyed credit standards across the mortgage industry, created the
subprime market, and caused the housing bubble that has now burst and
left us with the worst housing and banking crises since the Great
Depression.
The CRA should be abolished, along with the government-sponsored
enterprises that fueled the secondary market for subprimes — under
pressure from Clinton, who ordered HUD to set quotas for "affirmative
action" lending at Fannie Mae and Freddie Mac.
But powerful Democrats in Washington want to protect the act — along
with Fannie and Freddie — and spin the subprime scandal as the result
of too little regulation, not too much.
"Repealing or weakening the CRA would be a mistake," warns Senate
Banking Committee Chairman Chris Dodd, D-Conn., who argues that the CRA
should be strengthened.
Dodd, the top recipient of Fannie donations and himself a
beneficiary of a sweetheart mortgage brokered by a subprime lender,
recently invited one of Clinton's top enforcers of the CRA to testify.
"The notion that CRA has caused this problem is a pernicious
thought," said former Comptroller of the Currency Gene Ludwig. "These
are not truthful statements. The CRA has helped to create a better and
sounder world for finance, not the opposite."
Dead wrong. But the mainstream media believe it, and have attacked
those, including this paper, who dare to tell the truth about the
crisis. Already the debacle has erased $13 trillion in wealth, while
putting taxpayers on the hook for up to $8 trillion in bailouts.
Yet, somehow, these media-driven myths keep getting in the way of actual facts, such as:
Fact: The 1977 law was only lightly enforced until Clinton added
teeth to it in 1994 and launched an anti-redlining campaign against
banks, led by Ludwig, Housing Secretary Henry Cisneros (and later
Andrew Cuomo) and Attorney General Janet Reno that lasted into this
decade.
Minority homeownership rates, which had been flat, began a steep
rise in 1995, and home prices soon followed, stoked by easier lending.
Numerous bank officials complain that they still feel pressured by CRA
regulators to make inner-city loans they know are at great risk of
defaulting.
Myth: The CRA could not have led to financial Armageddon, because
the overwhelming share of subprime mortgages came from lenders that
were not banks and not regulated by the CRA.
Fact: Nearly 4 in 10 subprime loans between 2004 and 2007 were made
by CRA-covered banks such as Washington Mutual and IndyMac. And that
doesn't include loans made by subprime lenders owned by banks, which
were in effect covered by the CRA.
Last year, when the bubble burst, bank subprime loans totaled $142 billion, dwarfing those made by lenders.
What's more, the biggest subprime lender, Countrywide, while not
subject to the law, still came under federal pressure to make risky
loans in minority communities.
Myth: The CRA did not force anyone to do subprime loans or take excessive risks.
Fact: Subprime loans were the vehicle banks used to satisfy CRA
compliance, and Clinton and his regulators encouraged their use. Before
Clinton took office, subprimes were virtually unheard of. By the time
he left, they made up more than 9% of the market for mortgage
originations. Today they're 20%.
"It's instructive to go back to the early stages of the subprime
market, which has essentially emerged out of the CRA," ex-Fed chief
Alan Greenspan said in recent testimony on the roots of the crisis.
Clinton pushed banks to grant mortgages to minorities with poor
credit by using "flexible" underwriting standards — or risk being
branded racist. Rules were weakened to the point where welfare and
unemployment checks were accepted as qualifying income.
Myth: Greedy investment bankers, who securitized and sold subprime mortgages, drove us to the credit crisis, not government.
Fact: Clinton's regulatory policies led to the creation of this new
risk on Wall Street. His CRA amendments created the subprime market,
and only after he pressured Fannie and Freddie to socialize the risk
and guarantee the profit from the subprime loans did Wall Street get
involved in a big way.
The architects of the crisis want to divert attention from their own
culpability by blaming the markets rather than their own regulations
mandating that banks make high-risk loans based on race.
In fact, regulations had almost everything to do with this mess. And
instead of strengthening them to atone for the alleged "sins of
capitalism," we should be abolishing them.
During the last severe slump, President Reagan deregulated the economy,
saying: "Government is not the solution to the problem; government is
the problem." He's as right today as he was then.