Wednesday, 24 September 2008

In Passing

From the Carter administration: Another “gift” that kept on giving


Today’s Investor’s Business Daily[1]:

For those looking for a real start to today’s financial meltdown and government rescue, you need to go back – way back – to 1977, and the Jimmy Carter presidency.

It was then, for the best and purest of reasons [Oh, stop! - o.g.], that well-meaning Democratic members of Congress brought the Community Reinvestment Act into being...

Initially, the CRA was supposed to not just [require that banks] lend to poor areas, but to do so “consistent with safe and sound lending practices.”  That latter key proviso was ignored...  [Not just ignored:  Voided.  See UPDATE below. - o.g.]

Banks... that didn’t pass muster could be denied the right to expand their barnches, merge with other banks, or boost lending in new markets.
So far, nothing that we hadn’t already heard.  But then there’s this...
Regulators didn’t need to do much policing; they let that job fall to radical community groups such as ACORN and NACA, which siphoned literally billions of dollars from banks and lent that money in poor communities...

The community groups booked thousands of dollars in fees for every loan. And loans often required recipients to become active in radical causes – what’s today called “community organizing.”...
Gee, pass a law that lets the leftists extort cash from business.  Which they then use to create more leftists.  How ingenious! And no one objected?
Banks became pliable, easy targets.  No bank CEO wanted to be mau-maued[2] as an enemy of the poor.  They became shakedown targets, channeling billlions of dollars to groups that had, at best, meager results to show for it...
And of course the Republicans didn’t want to get mau-maued by the Democrats and the media, either.  So when they were in a position to stop the merry-go-round, they... did nothing.  Instead they sat back, while this Carter-era activist-support device clattered onward.

31 years and $1 trillion later, the overall homeownership rate is up 5%, with homeownership among blacks still below 50%.  [Figures from the IBD article.]

Find a copy of today’s IBD, and read the whole thing.

UPDATE 0980924 17:30: The story continues (HT: Shooting The Messenger):
...In 1989... Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates...

In fact, they found a racial disparity only by ignoring relevant data on applicants' ability to make mortgage payments - such as their assets and credit history.

But the political pressure was intense...  And... in 1992, came a study from four researchers at the Boston Fed, which seemed to bear out the critics’ contentions.

That study was, in fact, based on quite flawed data - but the authors’ political, media and academic protectors stifled most serious criticism, smearing the reputation of one whistleblower and allowing the Boston authors to avoid answering serious academic challenges...  Other studies with different conclusions were ignored.

The very next year [1993], the Boston Fed announced new requirements for banks - rules that have now turned out to be monumentally catastrophic:  Adopt “relaxed lending standards” or risk being labeled as racists, and face serious penalties under the federal Community Reinvestment Act.[3]...

(Of course, the loosened lending standards weren’t limited to poor and minority applicants - that would be discriminatory.)



Elsewhere (added 080924 18:29):

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[1] Investor’s Busines Daily, September 24, 2008: “Good Intentions Paved The Road To Subprime-Stoked Meltdown • Carter-era lending act forced banks to make risky mortgage loans” by Terry Jones [article is not online]

[2] And before anybody starts ranting about this term being “insensitive,” see Tom Wolfe.

[3] Now class, who became President in 1993?

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