Posted on 07/21/2008 8:13:07 PM PDT by Kaslin
In one of those front-page editorials disguised as "news" stories, the New York Times blames "the lucrative lending practices" of banks and other financial institutions for helping create the current financial crisis of millions of borrowers and of the financial system in general.
It must take either a willful determination to believe whatever they want to believe or a cynical desire to propagandize their readers for the New York Times to call "lucrative" the lending practices that have caused many lenders to lose millions of dollars, some to lose billions and some to go bankrupt themselves.
Blaming the lenders is the party line of congressional Democrats as well. What we need is more government regulation of lenders, they say, to protect the innocent borrowers from "predatory" lending practices.
Before going further down that road, it may be useful to look back at what got us into this mess in the first place.
It was not that many years ago when there was moral outrage ringing throughout the media because lenders were reluctant to lend in certain neighborhoods and because banks did not approve mortgage loan applications from blacks as often as they approved mortgage loan applications from whites.
All this was an opening salvo in a campaign to get Congress to pass laws forcing lenders to lend to people they would not otherwise lend to and in places where they would not otherwise put their money.
(Excerpt) Read more at ibdeditorials.com ...
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Community Reinvestment Act
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The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as “redlining.” The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.
The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act. [1]
The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution’s application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB). In 1995, as a result of interest from President Clinton’s administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators’ attention on institutions’ performance in helping to meet community credit needs. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for five years. Thus in 2002, the regulators opened up the regulation for review and potential revision.
Changes of 1995
The 1995 revisions were credited with helping to substantially increase the amount of loans to small businesses and to low- and moderate-income borrowers for home loans. Part of the increase in the latter type of lending was no doubt due to increased efficiency in the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997. [1]
Actually both these links are very interesting relative to Thomas Sowells discussion this thread. I previously posted the first one in commentary #6 above, so that’s a duplicate. It was written in 1993, but the second one in this commentary is as I recall much more recent. Regardless I see the first one as the “before”, and the second one as the “after”, or the result of the Clinton’s actions.
http://findarticles.com/p/articles/mi_m1282/is_n25_v45/ai_14779796
http://www.freerepublic.com/focus/f-news/1965239/posts
You’re very welcome :)
Sowell has a point the the government sure didn’t help matters with the Community Reinvestment Act which was passed in 1977 and “strengthened” in 1995. However, this is a very complex crisis and there is probably plenty of blame to go around.
The investment salesmen were turning a blind eye to investors bidding up prices by fraudulently obtaining resident loans. Also, the mortgage brokers were clearly pulling a fast one with the marketing of subprime loans as investment instruments.
I’d like to hear an assessment of the effect the Fed had by lowering prime which induced a lot of buyers into the market.
Like I said, lot’s of blame to be spread around.
Definitely lots of complicity parties to blame, but this and Greenspan’s cheap money and the Republican’s repeal of Glass Steagall all contributed heavily to allowing the banks to hang themselves on their own rope of greed. The government paved the way to NINJA loans, but the banks weren’t forced to make those loans, and they may well not have if they didn’t think they could sell the toxic crap to unwary investors.
I wonder if this isn't a direct result of the CRA to begin with - how else to recoup losses? (not excusing it just observing)
“It was not that many years ago when there was moral outrage ringing throughout the media because lenders were reluctant to lend in certain neighborhoods and because banks did not approve mortgage loan applications from blacks as often as they approved mortgage loan applications from whites.
All this was an opening salvo in a campaign to get Congress to pass laws forcing lenders to lend to people they would not otherwise lend to and in places where they would not otherwise put their money.”
Bingo!
Politicians get away with this to the extent that we gullibly accept their words and look to them as political messiahs.
Thomas Sowell columns re Obama
Are Facts Obsolete?
Conservatives for Obama?
Cocky Ignorance
Obama and McCain
Irrelevant Apologies
Success Built on Work Ethic
An Old Newness
A Living Lie
Obama’s Speech
Race and Politics
Non-Judgmental Nonsense
My memory of this repeal is that it was Senator Chris Dodd that lead the stupid charge to unravel this safeguard. Am I wrong in my memory of that???
:^)
You’re most welcome. I noticed a while back he’d written quite a bit on BO so I went back and grouped them together, I was surprised at how many he had written and I’ll bet ther’ll be more. :-)
BINGO. Get this man a CIGAR!!! Very eery repeat of the decade of the Roaring Twenties. We know that next decade will probably be called our ‘lost decade’. What shall the nineties be called?
“The government paved the way to NINJA loans, but the banks weren’t forced to make those loans, and they may well not have if they didn’t think they could sell the toxic crap to unwary investors.”
Well, banks were under pressure to make a certain ratio of loans in those low-income and high risk areas. Management didn’t want to get the regulators’ heat, and put pressure on their loan officers which created an atmosphere where income and debts were fudged.
From there, the banks sold off the loans as fast as they could, which led to all the problems with the bundlers/investment sellers like FNMA and FHLMC.
ps; I was a bank examiner for 27 years.
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