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By now we all are well aware of the crisis in the subprime housing market. Much blame for the mess has predictably been placed on unscrupulous lenders. When do we ever hear that our government may have actually caused the problem? Of course, we just don’t hear that. After all, protocol requires that we blame the private sector for all of society’s problems. To remedy those ills we are told that we need more government regulation of those greedy, blood sucking capitalists lurking everywhere in the business world.

No one ever seems to mention legislation like the Community Reinvestment Act (CRA) which made it mandatory for lenders to issue loans to subprime borrowers. Tom DiLorenzo has written an excellent article on the effects of the CRA here.

In the midst of all of this fallout Democrat wunderkind Barack Obama has been calling for more government regulation to rein in loose lending practices. This seems to be just a tad disingenuous of Mr. Obama, as he has recently been endorsed by the Association of Community Organizations for Reform Now (ACORN). Here’s an excerpt from DiLorenzo’s article that explains how the ACORN doesn’t fall far from the CRA tree:

So-called “community groups” like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA “protest” is issued by a “community group.” This can cost banks great sums of money, and the “community groups” understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.

Are we actually supposed to believe that ACORN would endorse Obama if they believed he was going to put an end to the “lending practices” that have been so lucrative for them?

But what of Mr. O’s challenger, the incorrigible Mrs. Clinton? Well, naturally she understands that it’s standard procedure for a government person to blame the market for every problem we encounter in this country, so that’s what she does regarding the subprime mortgage situation. She criticizes unfair lending practices and talks about holding lenders and brokers accountable in her speech before the National Community Reinvestment Coalition(NCRC). By the way the NCRC offers this explanation of what it is, and what it does:

The National Community Reinvestment Coalition is a national not-for-profit with over 800 membership organizations with constituents in every state in the country. The Coalition has spearheaded a proactive community reinvestment movement with the goal of ending discriminatory banking practices and increasing the flow of private capital and credit into traditionally underserved communities. (emphasis added)

UPDATE: I must thank a reader of this post for pointing out that the NCRC does NOT state that they increase the flow of private capital and credit into “undeserving” communities. Unfortunately, I missed the letter “r” that actually made that word “under-served.” Sorry about that.

This, of course, is not to say that I now find the NCRC more palatable. Since the gist of this post was mainly to highlight the disruptive nature of government regulation like the CRA, I should mention that the NCRC has called for the strengthening of the CRA. At the same time, however, the NCRC has also called for more accountability within the banking industry. But herein lies the problem.  The CRA that is so strongly supported by the NCRC forces banks to be accountable ONLY to federal regulatory agencies, NOT the people who are trying to procure a loan.

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2 Comments

  1. you quote:

    “increasing the flow of private capital and credit into traditionally underserved communities”

    then say:

    “Well, at least they’re honest! So legislation like the CRA gets passed and the NCRC sees to it that by law lenders must issue loans to people who the NCRC admits are “traditionally” UNDESERVING of these loans.” [capitalisation added].

    They said UNDER-SERVED. As in, they are deserving but typically not reached by intermediaries. To set up an organisation that increases capital flows to UNDESERVING customer would, indeed, ridiculous. But this isn’t what they said.

    Just a minor point.

  2. thanks, this information really helped me understand this prolbem alot


6 Trackbacks/Pingbacks

  1. By Housing Bubble « Growing up on 26 Feb 2008 at 12:20 am

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  5. […] made this all possible. For that you need to understand the affects of the changes in 2005 to Community Reinvestment Act (CRA). amnd other laws such as bankruptcy. So between regulatory changes made that paved the way for the […]

  6. […] overvalued homes which they could not afford. The Community Reinvestment Act, which I highlighted here, also forced lenders to issue loans to many subprime borrowers, who normally would not have […]

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