An interesting result of all the flash and hoopla about bailout-Mainstreet-Wallstreet is that conservative free-marketeers have decided it's the fault of poor people. Their specious, circular reasoning is that the Community Reinvestment Act (CRA) helped low income people get loans. This led to the banks, mortgage lenders, and various executives making money hand over fist because they got greedy. This led to the markets and politicians also getting greedy. Are you with me so far?
Obviously when people are so tempted and so greedy, they overextend themselves and do stupid stuff. Of course, they would not have done so if we (the people and the government) weren't so concerned about all those low income people and minorities. So, in conclusion, the conservative, free market guy says, "these people (those of low income status) are directly responsible for the glut of foreclosures and the current crisis"-. Do you get it? Good.
OK, let's check out the CRA. It was developed, according to the CRA website, in order to ""-encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulations 12 CFR parts 25, 228, 345, and 563e. The CRA requires that each insured 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, including mergers and acquisitions. CRA examinations (see Exam Schedules) are conducted by the federal agencies that are responsible for supervising depository institutions: the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS)."-
In 2004, The New York Times, David Chen reported: "Federal banking regulators in the Bush administration are poised to limit the nation's primary law requiring small banks to serve low-income residents in their own neighborhoods through housing investments and development projects."- You see, up to that point, CRA had a good record of managing, evaluating, and controlling lending to low income and minority people.
Chen continued: "Since 1977, the Community Reinvestment Act has required banks with assets of more than $250 million to satisfy stringent tests gauging their banking services to low- and moderate-income residents. Because of that obligation, housing groups say, banks have channeled $1.5 trillion into housing, medical clinics and other projects."- I might add that the record showed that these same borrowers and the lending institutions were exemplars of success with little record of default and foreclosure due to that stringent regulatory process. I want to repeat that last phrase---due to the regulatory process.
So, what you ask was the problem? As Chen reported, the problem was that some banks and lenders were aggravated by the regulations. "Two of the nation's four bank regulators have published formal proposals seeking to reduce the number of banks subject to the law. Under the proposal, only banks with $1 billion in assets would have to comply, meaning that 1,100 smaller banks would be subject to less scrutiny. The thrift office has already put its proposal into effect; the F.D.I.C. is a few months away from acting, although today is the deadline for public comment on the plan."- The other 2 regulatory agencies were inclined to go along and did. These regulators were under the direction of Bush-Cheney and their appointees.
So, fans, the mortgage meltdown was the result of deregulation that let loose the havoc of corporate and individual greed not CRA. In an April, 2008 article from the American Prospect: "University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans was made by the institutions fully governed by CRA."-
The same article quoted Janet Yellen, president of the San Francisco Federal Reserve, "Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts."- The real conclusion about the CRA and the mortgage meltdown is that laws and regulations did not make lenders engage in predatory lending, absence of oversight and lender greed did.
These people, the banks, the lenders, and the executives are the ones who are directly responsible for the crisis. Next in line are the politicians who are subsidized by these same big money interests who helped do away with responsible regulations and crippled regulatory agencies. All those who believe that the free market will properly regulate itself are the real culprits.
Every person with any sense knows if someone feels that he or she is not answerable to anyone else, that person's behavior gets deviant. This meltdown is such a case--there was and probably will be no consequences for the perpetrators. Equally important for us to remember is the notion that openness to community scrutiny along with fair, just consequences for wrongdoing allows each of us to be and do our best even if it is within the confines of civilization.