The latest meme coming out of the right-wing is that the current financial crisis should be blamed on African American and Latino low-income home buyers, and/or on the Community Reinvestment Act (CRA). That's right, they want to blame the victims of predatory lending as well as the law that was designed to prevent banks from practicing discrimination (by only making loans in wealthy neighborhoods, a practice known as redlining).
Both claims are patently false, and as we talk to our family, friends, neighbors, and coworkers, it is important to know the facts about these two bogus claims because as we get closer to election day, the Republicans are going to be pushing this meme very hard to convince voters concerned about the economy that it isn't the Republicans' fault while mounting their negative attack ads against the Obama-Biden ticket.
(Note: Several people have asked me to repost this diary, which I originally wrote on Friday morning when all the talk was about Thursday night's debate between Joe Biden and Sarah Palin. So, with some additions, deletions and other editing here it is. You can also Digg this Diary.)
Now that the Wall Street Bailout Rescue legislation has passed, Republicans (who are masters of the blame-game) are pointing the finger at everything and anything except their own poor stewardship of government as the cause of the problem. The first time I told a Republican that I supported Barack Obama, the response I received was, "He's going to raise your taxes." I was unprepared to refute that claim, but have since learned the facts so I won't be placed in that position again. That is why it is so important to understand the truth to fight these bogus claims.
The economy is the issue most driving voters in this election, and so the Republicans are naturally looking for ways to deflect responsibility for the current economic crisis. In the final weeks running up to the election, they're going to be pushing these lies hard. Please bookmark this diary and arm yourself with the facts when somebody tries to tell you that minority low-income home buyers or the CRA are responsible for the current crisis.
::
Marc H. Morial, a former mayor of New Orleans, has called on Treasury Secretary Henry Paulson to come out and set the record straight about subprime mortgages being granted to minority home buyers, saying Paulson has "an obligation to correct the misinformation that is spread concerning the root cause of the current financial crisis." He went further, explaining that the real abuse was putting borrowers who actually qualified for prime loans into subprime loans because it was more profitable to the predatory lenders -- something that proper regulation would have prevented:
"It's an effort to shift the climate away from deregulation and the lack of oversight," he said. "The numbers are becoming clearer each day that a large number of people who ended up with a subprime loan could have qualified for a prime loan. That's the abuse that's inherent here."
On the House floor, on cable network television and in Internet blogs in recent days, conservative politicians and commentators have traced the problem to the Community Reinvestment Act, or CRA, enacted in 1977 to extend loans to minorities who were historically denied homeownership.
Activists Angered By Blame For Crisis
::
The right-wing would also like to blame a piece of legislation passed during Jimmy Carter's administration for sub-prime mortgages issued in 2004 because they don't want to see the deregulation and lack of regulation that the Bush Administration has had oversight of for the last eight years. As an oped distinctly points out,
If you're not turned off by the undertone of blaming the victims; if you're not suspicious about blaming a 1977 law for shaky subprime loans that didn't begin to appear until 2004; and if you're willing to believe that the Bush administration used heavy-handed regulation against banks on behalf of poor people, you might find this explanation plausible - as long as you don't know much about the CRA.
Here are three things you should know about it:
- The CRA doesn't require loans to be made; it requires that the same rules apply to people seeking mortgages in poor neighborhoods as those buying in other neighborhoods. "Nor does the law require institutions to make high-risk loans that jeopardize their safety," according to the Fed's CRA Web site, "To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner."
- The CRA only applies to banks and thrifts whose deposits are insured by the FDIC. Mortgage companies like Countrywide Financial and fly-by-night cheapmortgage.com-type operations aren't CRA banks. Half of the subprime mortgages were made by companies that weren't covered by the CRA, and another 30 percent were written by organizations only loosely affiliated with CRA banks.
- The CRA only works in designated low-income neighborhoods. As Rep. Jim McGovern noted in Hopkinton Wednesday, the CRA has nothing to do with a mortgage on a $500,000 home in Hopkinton, let alone a $800,000 home. This borrowing binge was a nationwide phenomenon.
Yes, some low-income, urban neighborhoods have been especially hard hit by foreclosures, but poor families live closer to the edge and are always the first hurt when the economy turns. But because CRA banks operate under more supervision, the failure rate for those mortgages has been lower, and those mortgages were less likely to be bundled into the mortgage-backed securities that have caused most of the headaches on Wall Street.
Editorial: Don't blame meltdown on the CRA
While the mainstream banking community vigorously opposed the CRA, which was enacted to ensure that the credit needs of entire communities were met and not just those of the wealthiest neighborhoods, it was the predatory lenders who rushed in to exploit the people the CRA was meant to help:
The ugly truth is this: The redlining that led to the passage of CRA has been replaced by reverse-redlining. Lenders didn't have to be dragged into low-income neighborhoods. They rushed in. It was there that they could push their complicated mortgages onto the elderly, blacks and Hispanics, and then sell the loans to somebody else. At least 40 percent of the holders of subprime mortgages could have qualified for cheaper prime mortgages, according to one study.
Far from being spurned by financiers, low-income Americans have become their cash cow. Payday lenders are listed on the New York Stock Exchange. Operators go into poor neighborhoods pretending to be retailers. The product they "sell" – be it a used car or new sofa – is just a hook to saddle the trusting buyer with a loan that eventually costs them several times the ticketed price.
Yes, low-income people can be credit risks. That cannot be ignored. But this financial scandal is the work of fat cats, enabled by a permissive government. There's something highly indecent about blaming it on an innocuous law meant to remove some of the unfairness in the lives of the working poor.
Froma Harrop: Law for poor didn't cause meltdown
Highly indecent indeed! It's like blaming a rape victim for her own rape because she was wearing a short skirt.
::
When you hear people blame the poor or the CRA, or you read opinions like this one in the Wall Street Journal, claiming that multiple mistakes by politicians in Washington are to blame:
By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.
How Government Stoked the Mania
Housing prices would never have risen so high without multiple Washington mistakes.
Keep the facts in mind, and don't forget, which politicians in Washington to point the finger at. It was the Bush Administration that aggressively acted to keep all 50 States from protecting their residents from predatory lenders as we learned back in February:
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers by Eliot Spitzer, The Washington Post, February 14, 2008.
Yes, I know, Eliot Spitzer had to resign as Governor of New York in shame, but that doesn't mean he wasn't right about what happened with the Predatory Lenders when he was New York's Attorney General. When you hear people talking about how the victims of the predatory lenders are to blame, be armed with the facts. Ask yourself, how it could be that the CRA worked fine for 27 years from 1977 until 2004, and then suddenly caused this huge problem? It wasn't the CRA that failed, it was deregulation (of lending institutions that were previously regulated by the rules of the CRA) initiated by the Bush Administration in 2004 (when the Republicans still controlled Congress) that brought this upon us:
In 2004, The New York Times, David Chen reported:
Federal banking regulators in the Bush administration are poised to limit the nation's primary law requiring small banks to serve low-income residents in their own neighborhoods through housing investments and development projects.
You see, up to that point, CRA had a good record of managing, evaluating, and controlling lending to low income and minority people.
Chen continued:
Since 1977, the Community Reinvestment Act has required banks with assets of more than $250 million to satisfy stringent tests gauging their banking services to low- and moderate-income residents. Because of that obligation, housing groups say, banks have channeled $1.5 trillion into housing, medical clinics and other projects.
I might add that the record showed that these same borrowers and the lending institutions were exemplars of success with little record of default and foreclosure due to that stringent regulatory process. I want to repeat that last phrase -- due to the regulatory process.
So, what you ask was the problem? As Chen reported, the problem was that some banks and lenders were aggravated by the regulations.
[T]wo of the nation's four bank regulators -- the Office of Thrift Supervision and the Federal Deposit Insurance Corporation, both headed by Bush appointees -- have published formal proposals seeking to reduce the number of banks subject to the law. Under the proposal, only banks with $1 billion in assets would have to comply, meaning that 1,100 smaller banks would be subject to less scrutiny. The thrift office has already put its proposal into effect; the F.D.I.C. is a few months away from acting, although today is the deadline for public comment on the plan.
U.S. Set to Alter Rules for Banks Lending to Poor, October 20, 2004
The other 2 regulatory agencies were inclined to go along and did. These regulators were under the direction of Bush-Cheney and their appointees.
So, fans, the mortgage meltdown was the result of deregulation that let loose the havoc of corporate and individual greed not CRA. In an April, 2008 article from the American Prospect: "University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans was made by the institutions fully governed by CRA."
The same article quoted Janet Yellen, president of the San Francisco Federal Reserve, "Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts."- The real conclusion about the CRA and the mortgage meltdown is that laws and regulations did not make lenders engage in predatory lending, absence of oversight and lender greed did.
These people, the banks, the lenders, and the executives are the ones who are directly responsible for the crisis. Next in line are the politicians who are subsidized by these same big money interests who helped do away with responsible regulations and crippled regulatory agencies. All those who believe that the free market will properly regulate itself are the real culprits.
The CRA, Low Income People, and the Bailout: Results vs. Intentions
::
And if that is not enough to convince the people you know who are considering a vote for the McCain/Palin ticket, remind them that a McCain Administration would probably feature a Treasury Secretary by the name of Phil Gramm.
At the moment, everyone is guessing. We see the men and women the candidates have recruited as advisers, to be sure. We know that until he embarrassed his candidate, former Sen. Phil Gramm (now working for the Swiss investment bank UBS) was co-chairman of McCain's campaign. After he called the U.S. "a nation of whiners" suffering from "a mental recession," Gramm made himself scarce. But if McCain were to become president, Gramm might come out of hiding in a hurry.
Few may recall, but Gramm himself ran for president for a time in 1996, and his campaign chairman was none other than John McCain, who in the past has referred to Gramm as his "economic brain."
Hey McCain And Obama: Who's Your Paulson?
And if Gramm isn't named Secretary of the Treasury, he is sure to play an important role in the economic policies somewhere else in a McCain Administration.
Yes, this is same Gramm who was recently John McCain's campaign manager, until he was dismissed by McCain after putting down the subprime-housing meltdown as merely a "mental recession" in the minds of a bunch of "whiners." Gramm's rumored to be McCain's first choice as Treasury Secretary. He could become Chairman of the Council of Economic Advisors, maybe Fed or SEC chairman, or just McCain's go-to economist because he definitely channels the best of Friedman's ideas and Reaganomics into the new McCainonomics.
In any event, with McCain as president, Gramm would have much to say about "privatization, deregulation, deep cuts in social spending" as well as how to run Paulson's megabillion-dollar bailout on hard-core conservative principles.
Gramm is a diehard Reaganomics free-market guru and arch-deregulator. In 1999 Gramm masterminded the legislation that killed the Glass-Steagall Act, killing the original 1932 protections that separated commercial and investment banking. So while McCain admits he knows little about economics, Gramm is an economics professor, a long-time buddy of McCain and obviously the master architect of McCainonomics.
The shocking evolution of disaster capitalism
Warning: McCainonomics channels inner Friedman/Reagan/Bush/Gramm
And, remember, the McCain Campaign will not say flat out that Phil Gramm will not be part of a McCain Administration:
::
Let's work as hard as we can to make sure that the next administration is called the Obama Administration, because the alternative is frightening. Just remember, John McCain would like to do for the health insurance market what the Republicans have done for banking in the last decade.
::
And if you have time, after digesting all this information, be sure to read the article in Rolling Stone that rips off the mask of Maverick McCain, and reveals his hotheadedness:
Last year, after barging into a bipartisan meeting on immigration legislation and attempting to seize the reins, McCain was called out by fellow GOP Sen. John Cornyn of Texas. "Wait a second here," Cornyn said. "I've been sitting in here for all of these negotiations and you just parachute in here on the last day. You're out of line." McCain exploded: "Fuck you! I know more about this than anyone in the room." The incident foreshadowed McCain's 11th-hour theatrics in September, when he abruptly "suspended" his campaign and inserted himself into the Wall Street bailout debate at the last minute, just as congressional leaders were attempting to finalize a bipartisan agreement.
At least three of McCain's GOP colleagues have gone on record to say that they consider him temperamentally unsuited to be commander in chief. Smith, the former senator from New Hampshire, has said that McCain's "temper would place this country at risk in international affairs, and the world perhaps in danger. In my mind, it should disqualify him." Sen. Domenici of New Mexico has said he doesn't "want this guy anywhere near a trigger." And Sen. Thad Cochran of Mississippi weighed in that "the thought of his being president sends a cold chill down my spine. He is erratic. He is hotheaded."
Make-Believe Maverick
A closer look at the life and career of John McCain reveals a disturbing record of recklessness and dishonesty
This very long article doesn't miss a beat exposing McCain and the fact that the only thing McCain puts first is McCain. It includes the off-color comment to Cindy, as well as the wheelchair incident. Everything you ever wanted to know about McCain, but were afraid to ask!
UPDATE: I just want to draw your attention to a comment made by MichiganGirl relating a true story about a somebody she knows. It's a long comment, and worthy of a diary all by itself about the subject of blaming the poor.
Another example, is the story about 90-year-old Addie Polk shooting herself in Akron, Ohio, when her home was being foreclosed. She too had received a mortgage from Countrywide.
In 1997 Countrywide spun off Countrywide Mortgage Investment as an independent company called IndyMac Bank. Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run.
If you missed it, check out Inspired By Nature's heart-wrenching diary about how she too lost her home to foreclosure: It was my home, Indymac.