Tag Archives: CRA

That Housing Bubble

I rarely read George Will’s columns, and I stopped completely when he wrote one that blatantly lied about the findings of a university research center in an effort to debunk global climate change. (The center involved issued a statement protesting the mis-characterization of its research, but if the Washington Post ran it, I didn’t see it.)

Evidently, Will used a recent column to resurrect a horse that should have been dead long ago. When the housing bubble first burst, conservative pundits immediately blamed the whole mess on the CRA–the Community Reinvestment Act. The big bad government had forced lenders to make bad loans out of a misplaced “compassion” for non-creditworthy slackers. I knew this was bullshit, because I’d spent several years as a real-estate lawyer, and was well-acquainted with the Act and the practices of the banks that were covered by it.

Dean Baker has responded to Will’s effort to resurrect that argument with an excellent (and–gasp!–factual) smack down. It’s worth quoting at some length:

“There is not much ambiguity in the story of the housing bubble. The private financial sector went nuts. They made a fortune issuing bad and often fraudulent loans which they could quickly resell in the secondary market. The big actors in the junk market were the private issuers like Goldman Sachs, Citigroup, and Lehman Brothers. However, George Will and Co. are determined to blame this disaster on government “compassion” for low-income families.

The facts that Will musters to make this case are so obviously off-base that this sort of column would not appear in a serious newspaper. But, Will writes for the Washington Post.

The first culprit is the Community Re-investment Act (CRA). Supposedly the government forced banks to make loans against their will to low-income families who did not qualify for their mortgages. This one is wrong at every step. First, the biggest actors in the subprime market were mortgage banks like Ameriquest and Countrywide. For the most part these companies raised their money on Wall Street, they did not take checking and savings deposits. This means that they were not covered by the CRA.

Let’s try that again so that even George Will might understand it. Most of the worst actors in the subprime market were not covered by the CRA. The CRA had as much to do with them as it does with Google or Boeing. …”

Nuff said.