This ridiculous argument, echoed by locals like Konrad Heid, Allen Shirley, and Richard La Near, is used to attack those who believe that as many people as possible should share in the hassle dream of home ownership.
Conservatives constantly cite the Community Reinvestment Act as the culprit in the current crisis. Here are just a few facts that contradict their argument:
1. The CRA does not require banks to make bad loans. The law states that CRA lending must be done according to “safe and sound banking practices.” In fact, Konrad Heid has even admitted that the bank he previously managed did not engage in unsafe lending practices, thus it remained solid. Well, if Mr. Heid’s bank did not have to make bad loans, why did any bank?
2. CRA lenders—even when the subprime market was thriving—made a lower proportion of subprime loans than non-regulated lenders. The vast majority of the top subprime lenders had no CRA obligations at all.
3. The Federal Reserve conducted its own study and found that the CRA is not to blame for the subprime crisis and the fall of the housing market.
4. Some studies suggest that the CRA helped minimize the impact of the subprime crisis. One study concluded:
CRA Banks were less likely to make a high cost loan, charged less for the high cost loans that were made, and were substantially more likely to eschew the secondary market and hold high cost and other loans in portfolio.
Without mentioning the conservative attack on newspapers, in this morning’s Globe William B. Ketter does a nice job of setting the record straight on the health of the newspaper business. He cites these stats:
There are about 1,400 daily and 8,000 non-daily newspapers and newspaper Web sites in America. Overall, they’re read by 100 million adults in the country, according to Scarborough Research. That’s more people than bought a lotto ticket in the past month.
In any case, he assures us that “newspapers remain profitable,” and I hope he is right. But there can be no doubt that the newspaper-haters, led by people, who sane conservative columnist Kathleen Parker calls “the food-fighters on TV or the grenade throwers on radio,” are having some effect on readership.
Ms. Parker writes :
Unfortunately, the chorus of media bashing from certain quarters has succeeded in convincing many Americans that they don’t need newspapers. The Pew Research Center for the People & the Press recently found that fewer than half of Americans — 43 percent — say that losing their local newspaper would hurt civic life in their community “a lot.” Only 33 percent say they would miss the local paper if it were no longer available.
Despite their incessant attacks, television and radio conservatives rely heavily on newspapers and newspaper reporting and editing to provide them with source material for their various shows, which, of course, they proceed to distort to the best of their abilities.
Speaking of those who distort the news, here is the last part of an email I received on Wednesday from Sean Hannity, who, by the way, is a Great American:
What this country needs is another Ronald Regan. It was Regan’s success as a conservative that energized the entire country. Regan’s same philosophy, if articulated by a dynamic, charismatic conservative, will win back Republican power.
What is it with conservatives and their spell-checkers? You would think that since our 40th president is one of Sean’s heroes, that he would at least know how to spell his name. It’s a good thing George W. Busch wasn’t required to spell the name of his hero, Jesus Krist.
The first question I have is did the CRA “contribute to” (not “cause”) the current economic crisis?
Second, why do “they” (Congress, the media, etc) call them Sub Prime mortgages? I always thought that the lowest interest rates (Prime or Prime + a small number) went to borrowers with the best credit. Big interest rates and restrictive terms (call it Way Above Prime) went to higher risk borrowers.
Whoever or whatever institution made such (Prime PLUS, PLUS) loans did so for many reasons. Is political pressure in whatever form one of those reasons? Did such risky loans contribute to, but not cause, exclusively, the current economic crisis.
A recent commenter to my latest Voices letter said “if people can get credit, they will”. Do you agree with him/her? Is that inclination of “people”, maybe a lot of “people”, a contributor to the current economic mess?
Your wrote above “This ridiculous argument, echoed by locals like Konrad Heid, Allen Shirley, and Richard La Near, is used to attack those who believe that as many people as possible should share in the hassle dream of home ownership. “
Please explain what you mean by the word “possible”?
Also, I am impressed that you received an email from Sean Haggerty, or Handkerchief, or Hannity-Reagan, or Grand Inquisitor (the guy in the big hood) or whatever. I can’t even get McCaskill or Blunt to respond to my political platform for “middlers” recently posted. And they work for me!!
To answer some of your questions:
1. The term subprime simply refers (as I understand it) to those loans that are made when certain conditions (poor credit rating, inadequate collateral, etc.) would normally necessitate not making the loan without increasing the interest rate for payback of the loan. Think in terms of quality (prime) and below quality (subprime) loans. I’m not sure where the term originated, but I don’t believe it has anything to do with interest rates.
2. I can’t find anything from non-partisan sources that conclusively proves that the CRA lenders contributed to the crisis. I have found studies that show that the CRA was NOT responsible, including one done by the Federal Reserve, which is not a liberal institution. But I am sure there will be more and better studies done in time. CRA lending appears to constitute a much smaller percentage of the subprime market than I was initially led to believe by conservatives, but even if it weren’t, their claims that it caused the crisis (yes, they initially claimed it did) would still be logically invalid.
3. You question about political pressure is related to the CRA. As I said, the CRA, as far as I can tell, was not a major factor in the crisis, and I don’t know where else the political pressure would come from. If you dig deep enough, you will find that the subprime lending culture had little to do with the government, including the fact that it was largely unregulated. It appears that a majority of subprime loans were not made to low-income folks. And it appears that the troubles in the mortgage market were turned into a “crisis” because of Wall Street gambling. The best example was AIG, which insured such gambling to the extent that its tentacles were everywhere and no one wanted to risk a total collapse by letting it fail.
4. As far as whether people, seeking credit they shouldn’t (sometimes enticed by lenders), contributed to the crisis, I would say that, of course, the crisis had to have a beginning point. That point appears to be the failure of a percentage of borrowers (again, most were not CRA related) to continue paying their mortgages. But the way I see it, mortgage defaulters were necessary, but not sufficient to cause the crisis. I believe that if all there was to the crisis was a relatively small but significant number of defaulters, then we could have addressed that situation much more cheaply than what we have had to do up to this point. As I said, the crisis was exponentially exacerbated by gamblers wearing fancy suits and ties, and it is unfair to blame the poor and the CRA for the hundreds of billions of “bailout” money to date. That is my only point about all of this, and the only one I care to argue about passionately.
5. You asked what I meant by the word “possible,” as it relates to the number of people who the “we” (the government is “we”) should help achieve home ownership. What I mean is those, who in compliance with the CRA guidelines of “safe and sound banking practices,” would otherwise not qualify for “prime” loans, but who may qualify for loans with higher rates attached, if they can demonstrate a practicable plan to pay back the loan. This would not include lending to those who had no ability to pay back the loans, as some non-CRA lenders did (many to middle class borrowers). As a reminder, I quoted one study in which it was demonstrated that CRA banks were not as onerous on subprime borrowers as other subprime lenders and were “more likely” not to sell their loans on the secondary market; such selling to the secondary market was the efficient cause of the problems, according to Ben Bernanke.
6. Don’t be too impressed that Hannity has me on his email list. I get automated emails from all of the right wingers, just to keep abreast of the width and depth of conservative insanity. And I suggest that if you want to get in touch with Blunt, you make a rather large donation to his senatorial campaign. His ears will really perk up if you flash the cash.