Posted by Dave on 10/13/08 at 10:44:53 am
Categories: Economy

The Right has recently created a new bogeyman. And this is a big one - it caused the current economic crisis!!! Supposedly.

The new bogeyman is the Community Reinvestment Act (CRA). The Community Reinvestment Act is:

intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.

Because of this act, credit was opened up to a whole new market - lower and moderate-income, and often minority, communities. Many on the Right have pointed directly back to the CRA as a what caused the current crisis. Their argument is as follows - (irresponsible) poor people of color got loans that they could never afford, and in turn defaulted on their debt, which left the banks (or whomever bought the debt) empty handed. People default on debt all the time, but when it became thousands of people default on debt at the same time, the damn burst, lenders began to fail, and the stock market crashed.

Of course, the Right is right that more poor people were able to get loans through the CRA. But they are very, very wrong that this was the reason for the current recession that the United States, and the World, finds itself in. Renowned economist Nouriel Roubini gives the cause of the crisis as follows:

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity were excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

It is clear that the current situation has been caused by many things, but one of those things was not the CRA.

Of course, ACORN has been thrown into the mess as another scapegoat, being blamed by some as the "bogeyman" that caused the "bogeyman." ACORN has worked for years attempting to get banks to give loans to low- and middle-income communities, and especially to neighborhoods that are predominantly made up of people of color. That part is true, and the Right has attacked them for it. I mean, how dare they think that people of color should have the same access to loans as white people? But again, giving loans to low- and moderate-income individuals or families, or pressuring banks to be willing to give loans to those in predominantly minority communities, did not cause this crisis.

Both Media Matters and the American Prospect have also taken this issue on and debunked many of the myths that are floating around about how the CRA and poor people caused the crisis, and addressed the ACORN connection. Robert Gordon, at the American Prospect, summarizes it like this:

It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did.

This crisis was not caused by poor people. People of color did not cause it. And it was not caused by ACORN.

It was caused by greed. It was caused by the demand for profit.

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