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Defending the Community Reinvestment Act

Let’s talk McLaughlin for a sec.

I have been a loyal viewer of this fine television program for probably 15 years now. A few years ago, a housemate chided me for including the show on my Tivo season pass. Old men in ties barking about politics, she said? How the hell do you watch that? But I wouldn’t miss it. It’s the best thing on television this side of Battlestacked Galactica. Meet the Press, This Week, Face the Nation, and the weekly conservagoat circle jerk over there on Fox “News?” It’s all crap. You really want to know your stuff, you watch The McLaughlin Group.

Today’s segment on the aforementioned housing deal was scintillating. Pat “Cooper” Buchanan and Monica “Aleister” Crowley of course argued against it while Eleanor and Clarence think it’s reasonable. There are some things said by the former group that should be clarified. Sayeth Crowley:

The source of the public frustration with this plan is that the federal government is going in as a savior when the federal government created this problem in the first place with the Community Reinvestment Act, holding a gun to these banks’ heads…Jimmy Carter and Bill Clinton started with the Community Reinvestment Act; they held a gun to these banks’ heads, told them to make these loans to people who had no opportunity to pay them back.

She’s quite a dancer, ain’t she? Notice how it’s the generic “federal government” who created the problem, notwithstanding that the “federal government” has been under Republigoat rule for the last eight years, and that, despite that, the housing market’s topple is the fault of President Clinton and, gasp, President Jimmy Carter, who left office in 1981.

There are, though, a few things worth understanding about the Community Reinvestment Act that any standard human being with at least two working phalanges can find on the Google.

For starters, I think it is important to understand the original motivation behind the CRA. It was meant to correct the practice of redlining, which was initially perpetrated by the United States government via the Federal Housing Administration in the 1930s. It is, I think, generally understood that the federal government has an obligation to try to correct institutionalized racial discrimination in the United States, especially when it was the federal government doing the institutionalizing. No? This was the aim of the CRA when adopted in 1977.

Characterizing the Act as “holding a gun” to the heads of banks is silly. The Act has ambiguous enforcement powers driven by the government’s oversight of FDIC coverage and specifically says that lending institutions should not be forced to make unsafe loans to comply, and lending institutions are not without sufficient help from the government in achieving compliance. No, the CRA is not some maniacal liberal social engineering experiment. It is reasonable public policy meant to correct a longtime wrong perpetrated specifically by Uncle Sam.

And, by the by, pinning the CRA on Carter and Clinton alone is just a lie. President George H.W. Bush in 1989 signed legislation increasing oversight provisions under the CRA in light of the Savings and Loan debacle.

Not to mention that Former President George W. Bush was, to some extent, down with the cause of minority home ownership. As previously mentioned on KIAV, in October 2002, he spoke at something called the Minority Homeownership Conference, and he said this:

More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That’s a homeownership gap. It’s a—it’s a gap that we’ve got to work together to close for the good of our country, for the sake of a more hopeful future. We’ve got to work to knock down the barriers that have created a homeownership gap.

I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families. (Applause.)

See, Bush II was all behind increasing minority home ownership, though I rather doubt his support was motivated by righting a longstanding institutional wrong. However, Bush’s speech in October 2002 shows mightily that pinning the notion of increasing minority ownership on us bleeding-heart liberals is just a lie by a lying liar who lies.

Now. Has the Community Reinvestment Act contributed to the current turmoil? Cribbing more from the Wiki page: It’s debatable. Ron Paul thinks so, but Ron Paul thinks government should be you, your shotgun, and how well you can use it. Some guy named Stan Liebowitz and another guy named Russell Roberts, described as “a student of Milton Friedman,” so, duh. I think Ayn Rand probably would have believed so, too.

Who disbelieves this notion? Economists at FDIC and the Fed. San Francisco Federal Reserve Bank Governor Randall Kroszner. Economist Luci Ellis. FDIC Chairman Sheila Bair. Comptroller of the Currency John C. Dugan. Tim Westrich of the Center for American Progress (okay, duh). Robert Gordon of the American Prospect. Daniel Gross of Slate (duh). Aaron Pressman from BusinessWeek.

And remember, kids, only regulated financial institutions are obligated to comply with the CRA. Independent mortgage firms need not apply. Stolen from the Wiki:

In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[67][34] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made “perhaps one in four” sub-prime loans, and that “the worst and most widespread abuses occurred in the institutions with the least federal oversight”.

The housing mess is a complicated issue, one that a person cannot simply pin a singular cause upon. I am certainly not qualified to even begin to understand its causes, though I tend to think that the general culture of deregulation that has existed for some 30 years didn’t help. But, my goodness, to suggest that a law passed in 1977 to address the institutional injustice of redlining is solely to blame and to use that blame to hang that albatross on the neck of the opposing political party specifically…well, that just isn’t right.

One Comment

  1. Suzanne

    Great post! Anyone who follows the data rather than the rhetoric would actually find that not only did CRA not cause the crisis, but it actually deterred lenders from making irresponsible loans in many markets, thus saving us from what could have been an even worse situation. Traiger & Hinckley have three interesting reports on how CRA saved us on their website at http://www.traigerlaw.com/index.php.

    Of course, no one who asserts that CRA caused the mess will bother reading something of substance, but it’s nice to know that the facts back us up.

    Posted on 25-Feb-09 at 6:16 pm | Permalink

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