So my dorm just exploded; yours?

[mikemac]

<p>Just to recap where we ended up on the issue, because all the right-wing people are going to be telling the fable in the years to come that it was the gov’t that pushed the financial industry into this mess. Rush Limbaugh and the other right-wing fanatics are screaming that it was the community reinvestment act (CRA) that caused the whole problem. In fact to the right the lesson of the crisis is NOT the need for reasonable oversight so there are no more trillion dollar bailouts. What you see happening to the banks is clear repudiation of their worldview, and yet to the amazement of most people they find in the unfolding crisis “proof” the government caused the crisis!! </p>

<p>Soccerguy quotes from the standard story they use, explaining its genesis thusly

clearly you do not understand the cause of what just happened. Financial organizations (read: banks) were pushed and pushed and pushed to make poor financial decisions (read: lending to people who had no hope of paying back the loan)

That “pushing and pushing” he’s talking about is the CRA act. Now you can never convince someone on the right they’re wrong about this; you notice that soccerguy has not yet admitted he is wrong. But for everyone else, who may encounter people like soccerguy on campus earnestly peddling this story and wonder if maybe there’s something to it, you deserve to know what really happened and recognize the right-wing rants for the fantasy that they are. </p>

<p>Here is a Federal Reserve speech yesterday by one of its Governors (12/3/08) that addresses the very claim made by soccerguy and others on the right

Recently, Federal Reserve staff has undertaken more specific analysis focusing on the potential relationship between the CRA and the current subprime crisis. This analysis was performed for the purpose of assessing claims that the CRA was a principal cause of the current mortgage market difficulties. For this analysis, the staff examined lending activity covering the period that corresponds to the height of the subprime boom.</p>

<p>First, we asked what share of originations for subprime loans is related to the CRA. The potential role of the CRA in the subprime crisis could either be large or small, depending on the answer to this question. We found that the loans that are the focus of the CRA represent a very small portion of the subprime lending market, casting considerable doubt on the potential contribution that the law could have made to the subprime mortgage crisis. </p>

<p><snip></snip></p>

<p>Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.</p>

<p>[FRB:</a> Speech–Kroszner, The Community Reinvestment Act and the Recent Mortgage Crisis–December 3, 2008](<a href=“http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm]FRB:”>The Community Reinvestment Act and the Recent Mortgage Crisis - Federal Reserve Board)

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