Archive for July 21st, 2011

“But the CRA forced them to break the law!”

Jul 21, 2011 in Economy, Housing Bubble

The CRA-caused-the-crash myth had all of the right elements to make it popular amongst the brethren. Supposedly, librul Democrats passed the Community Reinvestment Act to force banks against their will to underwrite risky loans to families in urban areas. When those loans predictably underperformed, the hapless mortgage lenders were put out of business thereby paving the way for a government takeover of the private sector. The message of the story is obvious; business-hating politicians pulled the levers of Big Government and used listless Negroes as pawns in their long term goal of steering the USA further down the road towards Communism. There’s a couple things wrong with that story. Mortgage lenders lobbied hard for that legislation (under the twin banners of deregulation and “ownership society” propaganda) and sought to issue more risky loans far beyond what the CRA required because of the potential for higher rates of return. Remember “Lost another one to DiTech”? Who could forget besides the willfully blind? Anyone breathing and with a pulse during the past decade knew how aggressively companies pursued risky borrowers and as it turns out the motive for higher and higher profits obscured all other concerns. Wells Fargo was recently fined $85 million dollars for committing fraud against its customers by pushing them into higher interest sub-prime loans and, among other things, falsifying legal documentation. $85 million is a pittance compared to the tens of billions Wells Fargo received in bailout funds and the free money they continue to receive by borrowing money from the Federal Reserve at 0% interest but it still shows that nobody was forcing giant lenders into a precarious financial predicament. Nevertheless, the CRA myth will carry on. The allure of an easy answer that conveniently absolves the home team of responsibility and heaps it upon minorities is too great for them to resist. Which isn’t racist, of course.

-mg