As appeared on Politics and Critical Thinking:
While out cruisin' the socialist slums of the blog world, I came across an ever growing favorite of mine, Firedoglake. Seems the burnin' doggies want to tackle the CRA meme and try and spin it is as a "racist" maneuver. Of course this was done by rich whitey to cover his/her wealthy arse and blame our brown and down brothers and sisters.
FDL linked up to the Huffington Post to make the case about how the CRA only extends to small banks and thrifts. And the amount of CRA loans had nothing to do with the increasing in subprime loans. Back on to topic.
Phoenix Woman from FDL displays her obvious party wonkism and ignorance on the topic,
If the GOP's bogus arguments sound familiar, it's because they used the same easily-debunked nonsense to try and blame the current crisis on the 1977 Community Reinvestment Act (because it allegedly forced nice upstanding bankers to give money to black people! Quelle horreur!) -- even though the vast majority of the bad loans out there had nothing to do with the CRA.Hmmm, how could the vast majority of the CRA loans have nothing to with the bad subprime loans? The CRA is what brought them into existence. Using there own cited sources (i.e. Wikipedia, Community Reinvestment Act) look at the definition.
The CRA mandates that all banking institutions that receive FDIC insurance be evaluated by the relevant banking regulatory agencies to determine if the institution has met the credit needs of its entire community in a manner consistent with safe and sound operations.This means that loans had to be made to low income individuals who would not have otherwise qualified for home loans and these loans were labeled "subprime" due to the relative risk involved with their issuance. There is some truth in saying that the whole economic crash was not caused by CRA specific loans, it was caused by subprime loans. Most of them were issued because of regulatory requirements of the CRA amendments to the Financial Services Modernization Act, others just because of greed. In effect its pairing with the FSMA opened the door for a larger subprime market. So the CRA does have a little something to do with subprime bust.
Enter Phil Gramm arch super villain at large,
The reason the Republicans are dipping into the race-baiting barrel once again isn't just because it's their favorite thing to do. It's because they have to hide their lead role in ripping out all the finance-industry laws that had saved America from stock market meltdowns during the latter half of the last century. Phil Gramm, John McCain's go-to guy for financial wisdom, is the lead villain of the piece, as he successfully pushed to kill the Glass-Steagall Act that had kept us and our money safe for so many decades.Now this raises two points about Phoenix Woman's ignorance. First, Gramm did not do away with Glass Steagall, it was well on its way out, The Long Demise of Glass-Steagall. His was the final bullet to its head but it was already done and as far as protections it was withering on the vine. So to characterize Phil Gramm as the architect of its destruction is quite disengenious. Secondly in order to get the Financial Service Modernization Act passed he had to compromise with Clinton by adding CRA amendments to the FSMA which severely empowered the CRA therby assisting in putting us in this mess. This brings me to the Huffington Post article Hale "Bonddad" Stewart's article, Memo to Republicans: CRA Has To Do With the Current Problems. Actually it does.
His first stultifying assessment,
There are two huge problems with this analysis. The first one alone should dismiss this claim as a farce. The CRA was signed into law in 1977 -- almost 30 years ago. So, what do you think the possibilities of a law passed 30 years ago causing the lending problems now?Huh? So by Stewart's logic, Phoenix Woman's statement that Glass Steagall has been protecting our money is irellevant becuase it was passed in 1933. This is one of the most comical arguments the Left has.
But wait -- Clinton changed the law That was the real problem No it wasn't, regarding those changes:But half correct, it was his forced compromise with Gramm that empowered the CRA even more and extended its reach.
But here's the real kicker. The Community Reinvestment Act only applies to banks and thrifts:This is true if we were still living prior to 1999. This is an excerpt taken from US Banking, Housing and Urban Affairs website concerning Gramm, Leach, Bliley of 1999.
The Federal Reserve may not permit a company to form a financial holding company if any of its banks or S&Ls did not receive at least a satisfactory rating in its most recent CRA exam.Meaning if a financial institution(i.e. insurance company, annuity, bank, mortgage holder, etc.) did not comply with the CRA requirements of subprime loans then they would not be allow to merge with another institution. The point that was lost on Firedoglake and Huffington, was not the amount of the CRA specific loans, but the regulatory requirements imposed on the FSMA created an even larger market for the issuance of subprime loans. A market and regulation that Wall Street was more than happy to exploit. Now, don't misunderstand me, I am not implying that Wall Street was a victim of the big bad regulation loving Dems either. Believe they have their fare share of blame in all of this, probably the most.
No bank or financial holding company may commence new activities authorized under the Gramm-Leach Act if any bank, or bank affiliate of a financial holding company, received less than satisfactory rating at its most recent CRA exam.
In synopsis, the CRA was not the only mitigating factor to the subprime bust, but it definitely helped. The rigorous attempts by both sides to paint the other in such a bad light is further proof that they both had their fingers in this pie. Blame lies in four places, Democrats, Republicans, Wall Street, and people who could not pay their bills. Concerning the last group, it is utterly ridiculous to Liberals to paint the Republicans as racist for claiming it was all the CRA. As it is just as ridiculous for the Republicans to blame everything on the CRA. People who do not or cannot pay their bills are not confined just to one color; there are brown ones, red ones, white ones, yellow ones and even some rich ones. It's about time we all faced the music and realize this all our fault, it will be the only way any us can correct it.