The meltdown culprits: Obama, Pelosi, Clinton … 2

 An Investor’s Business Daily editorial makes it clear who is responsible for the financial crisis, and why:  

The risk-taking was her [Pelosi’s] idea — and the idea of all the other Democrats, along with a handful of Republicans, who over the past 30 years have demonized lenders as racist and passed regulation after regulation pressuring them to make more loans to unqualified borrowers in the name of diversity.

They were the ones who screamed — "REDLINING!" — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.

If they don’t comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.

No fewer than four federal banking regulatory agencies are responsible for enforcing the law. They subject lenders to racial litmus tests and issue regular report cards, the industry’s dreaded "CRA rating."

The more branches that lenders put in poor neighborhoods, and the more loans they make there, the better their rating. Those lenders with low ratings can not only be fined, but also blocked from mergers and other business transactions needed to expand.

The regulation grew to monstrous proportions during the Clinton administration, obsessed as it was with multiculturalism. Amendments to the CRA in the mid-1990s dramatically raised the amount of home loans to otherwise unqualified low-income borrowers.

The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical "housing rights" groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama.

Banks and other lending institutions should not be the servants of government. They should be in business to make a profit. In the end, the perversion of their purpose harmed the whole economy, and the worst sufferers are precisely those that the misdirection of their function was supposed to help.  


Posted under Commentary by Jillian Becker on Thursday, September 18, 2008

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This post has 2 comments.

  • Dan W.

    Again, I have to disagree with the logic and factual accuracy of this line of argument. I’ve laid out some reasons why the whole “the CRA did it” argument doesn’t hold water on your “regulation is the disease, not the cure” post (the largest problem being that most of the financial institutions that made these loans were not even under the authority of the CRA).

    But I also have to point out the way in which IBD and similar commentators leave the lending institutions themselves off the hook in this whole fiasco. The way IBD argues it, you would think that these lending institutions were dragged kicking and screaming the whole way, trying to not make these loans but being forced to do it by the big, bad government. It’s a nice story (especially for the lenders who want to be bailed out with billions of our tax dollars), but it’s not true. Until the bottom fell out of this thing, many lenders were making money hand over fist on these sub-prime loans, particularly on commission %s. Sub-prime loans were big business, and once lenders saw that other people we’re making $ off of them, they began to run like lemmings toward the subprime market…not, of course, realizing the cliff was just on the other side. The biggest injustice, of course, is that many, many people are sitting on millions for making these irresponsible loans. And there lies a truly scary fact about our current financial system…many people actually got rewarded for making irrational decisions and tanking our economy. Adam Smith rolls in his grave…

  • mmo

    we should just let those big businesses fail too. Bailing them out is only going to prolong this problem.