More evidence that government-enforced lending to poor people had nothing to with the housing crash or the economic crisis.
Earlier this week, I dissected the bogus efforts to smear the Community Reinvestment Act (CRA), a Carter-era initiative to bar red-lining and discrimination in lending by banks to ensure low-income and minority access to bank loans. As the widely-read economist Brad Delong puts it: “Of all the bizarre things coming out of the Republican Party…is the claim that the financial crisis is the result of government regulation that forced banks to lend to poor people–especially to poor brown and black people.” Courtesy of Delong’s blog, here are a couple of additional strikes against that smear.
1) The Wall Street Journal reported this week on a study by two economists about lending to poor and moderate income communities in California and found, among other things that a) “loans originated by lenders regulated under CRA in general were “significantly less likely to be in foreclosure” than those originated by independent mortgage companies that weren’t covered by CRA” and b) 12% of the loans made by CRA lenders in these areas were high-priced loans, a technical definition of subprime…52.4% of loans made by independent mortgage companies in low-income areas.”
2) As a consequence of research conducted on behalf of the Federal Reserve, including the study mentioned above, one Fed governor, the conservative economist Randall Kroszner has concluded that: “the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.”
Of course, the fact that it’s obviously untrue doesn’t mean that the right-wing will stop pushing the story. Because the alternative to the CRA myth is to admit that there are limits to the magic of endless wealth-creation if only the government and liberal do-gooders would just leave the market alone. Although even the greatest free-market ideologue of all, Alan Greenspan, has now admitted that there is a “flaw” in that kind of thinking.
