That Was Then, This is Now

If you’ve been toying with the idea of setting up your own Right-Wing “think tank” to rake in a few Koch dollars in these tough economic times, pay attention, because this is how it’s done:

…by increasing the costs to banks of doing business in distressed communities, the CRA makes banks likely to deny credit to marginal borrowers that would qualify for credit if costs were not so high.

Cato Instutite, 2003 Handbook for Congress

Some supporters claim that stricter Clinton administration CRA enforcement has reduced or ended discrimination. They note that between 1993 and 1997, mortgages made to all borrowers increased by 30 percent, while mortgages made to minority borrowers increased by 63 percent. But Chicago Fed economists Douglas D. Evanoff and Lewis M. Segal found that the increased rates of loans to poorer neighborhoods were about equal before and after 1992. Further, Federal Reserve Board economist Robert Avery found that in 1993 and 1997, institutions both not subject to and subject to CRA made about the same percentage of mortgages to lower-income borrowers and neighborhoods as they did to all borrowers.

Is it Time to Repeal the Community Reinvestment Act?” 1999 Cato Institute publication.

Now, flash forward exactly one housing market bubble collapse and a catastrophic economic implosion…

US policies, such as Fannie Mae and the Community Re-investment Act, were direct contributors to the financial crisis and …bankers shouldn’t be blamed for simply reacting to perverse government incentives.

Krugman’s Fannie Mae Fantasyland 2010 Cato Institute publication.

Few topics related to the recent financial crisis have generated so much heat, yet so little light, than the debate surrounding the role of the Community Reinvestment Act and its impact on mortgage lending standards. While regulators and the community groups strongly defend the act, many economists have pointed to CRA as an important driver behind the lowering of underwriting standards. The panelists will present original data and research on the impact of CRA and its role in the financial crisis.

Cato website’s description of a Cato panel titled The Role of the Community Reinvestment Act in the Financial Crisis

(Hat Tip Mike Konkzal via Paul Krugman)


It must be nice to be the Mittens Romney of Wingnut Tink Tanks.

It’s those poor folks’ fault — again.

The NYRB has an enlightening piece about this here.

@Benedick: I love the personal ads in the back of the NYRB.

CRA did nothing but mandate that each FDIC insured bank markets all products and services to all geographic areas where such bank accepts deposits. It was a response to redlining and the unavailability of many necessary bank services to under served neighborhoods.. CRA simply required banks to market all services to all areas where deposits were accepted. CRA never required lenders to lower underwriting standards to borrowers in previously under served areas. Sure, on rare occasions, a small local bank might grant a debt ratio (DTI) exception of 2-3 points to add a small $50,000 loan to the portfolio to enhance CRA compliance. But that loan could not be sold to Fannie or Freddie due to the DTI exception so it stayed at the local bank. CRA covered banks and only bank owned mortgage lenders. CRA did not then cover most mortgage lenders as they were not bank owned. In other words, CRA did not have a damn thing to due with the rash of foreclosures experienced. What is curious though is how not one large bank has stood up in defense of CRA and stated what I just posted, that CRA had no role in the crisis. It is just too damn convenient for the large banks to use CRA as a scapegoat and encourage such sorely mistaken and misplaced blame.

@jwmcsame: Thanks for that. I understood it. This is the new Republican explanation of how the financial collapse was Clinton’s fault. I’m hearing it a lot. On the last Maher show I watched, for example. And of course he’s too uninformed to respond adequately.

@Dodgerblue: Foxy philosopher, 50s, department head at major Ivy League, seeking erudite anthropologist gentleman to 70s for long moonlight digs. Spring in Paris, summer in Tuscany, winter at Vail. Let’s enjoy the good things in life together. (No fats, fems, or Republicans)

@Benedick: maher can be a little uninformed at times and the stephen hawking sexy halloween costume bit was way out of bounds last week. did you see cnn war corrspondent michael ware on maher then? he said iran invaded iraq the same time we did and actually was running all the resistance and coordinating the bombings and artillery strikes on the green zone. he said iran was the only winner in that war, again proving that w’s debacle in the desert only strengthened our worst enemy in the region. but considering how h.w. manipulated iran to bring jimmy carter down and then later iraq, maybe that was the plan all along.

@jwmcsame: The whole costume skit was cringe-making. But Ware was very impressive and hilarious when he kept grabbing brother West as if holding him back from a fight. The guest got in the Fannie/Freddie spin and Maher didn’t know enough to correct it. He didn’t even know enough to correct motherfucking Grover Norquist. It’s not good enough. He does a lot that’s good but if he’s going to have those people on he needs to know what they’re talking about.

@Dodgerblue: I do my best.

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