CRA Once Again


As best I can tell no business reporters working for any of the major publications in the United States (or, indeed, around the world — this is a global issue) have reached the conclusion that the 1977 Community Reinvestment Act somehow leapt through a wormhole and caused the subprime meltdown thirty years later. Fortunately for wingnuts, the editors and publishers of every major newspaper have decided that the meaning of “opinion section” is “place where we let conservatives lie all the time,” so we get things like this Jeff Jacoby column in the Boston Globe blaming the insidious nexus of CRA and black people for the problem:

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to “meet the credit needs” of “low-income, minority, and distressed neighborhoods.” Lenders responded by loosening their underwriting standards and making increasingly shoddy loans.

I’ve linked to Robert Gordon’s debunking of this point several times, but now let me add this other debunking from Ellen Seidman that I hadn’t seen before. And, again, recall that not only is it false to say that CRA caused the bad lending, but completely irrespective of who or what caused the bad lending absolutely nobody forced financial firms to make large, highly leveraged bets on the loans. It was conservatives who blocked regulation of credit default swaps. It was conservatives who watched as the housing bubble developed and it was conservatives who blocked any action to try to ensure a soft landing once the bubble popped. It was conservatives who said we had to make the taxes of the ultra-rich individuals who brought this problem upon us as low as possible. It was conservatives who blocked efforts to curb predatory lending and it was conservatives who blocked efforts to investigate fraud more robustly.