Blaming the Poor for Ruining the Market III

I will continue to vehemently attack the idea that minorities and the poor are responsible for getting loans they could not afford through CRA's and subsequently caused entire US and global economy to fail. It's not that it just offends me, it's that it is completely false.

Please, if you still believe that CRA's and the poor are responsible for this mess, you must listen to "Another Frightening Show About the Economy" from the This American Life podcast. If you listen to that you will see first, just how bad and scary things are financially and second, how the poor have almost nothing to do with it. Do yourself a favor and listen to the podcast and you will start to understand why we are in this mess.

Here are some quotes from various sources who all refute the idea that the poor via CRA's caused the financial crisis:

"CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that's 80% of the loans which were fully or largely outside CRA jurisdiction. More than that, the non-CRA mortgage firms made subprime loans at twice the rate of CRA-covered firms." - Ezra Klein, via Mark Thoma blog Dept. Economics University of Oregon

"Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks." - Aaron Pressman, Business Week 9/29

"Second, CRA does not either encourage or condone bad lending. Bank regulators were decrying bad subprime lending before the turn of the millennium (see Interagency Guidance on Subprime Lending), and warning the CRA-covered institutions we regulated that badly underwritten subprime products that ignored consumer protections were not acceptable. Lenders not subject to CRA did not receive similar warnings.And we also explained to those we regulated how to serve lower income communities and borrowers in a manner that was good for the borrower, good for the bank, and earned CRA credit." - Ellen Seidman, New America Foundation

"The banker I asked summed things up this way, "As far as CRA requirements and the current crisis in the financial markets, anyone who claims that our problems are the result of the CRA rules just doesn't understand the crisis or the way those requirements are worked out in a community. Further, these rules have been around for decades (enacted in 1977) and they just aren't the problem." - Larry James, ED of Central Dallas Ministries

" Furthermore, companies not covered by CRA made subprime loans at more than twice the rate of lenders that were, according to Janet Yellin, president of the San Francisco Federal Reserve Bank. The idea that CRA brought the banks down is "just ridiculous," Mr. Thoma said.

The ugly truth is this: The redlining that led to the passage of CRA has been replaced by reverse-redlining. Lenders didn't have to be dragged into low-income neighborhoods. They rushed in. It was there that they could push their complicated mortgages onto the elderly, blacks and Hispanics, and then sell the loans to somebody else. At least 40 percent of the holders of subprime mortgages could have qualified for cheaper prime mortgages, according to one study. " - Froma Harrop, Dallas Morning News

"There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb lending virus originated in Greenwich, Ct., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate.

At Monday's hearing, Republican Rep. John Mica of Florida gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions to Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "de minimis."

Lending money to poor people doesn't make you poor. Lending money poorly to rich people does." - Daniel Gross, Newsweek