rayboyusmc
Senior Member
SOUTH BRONX, September 28 -- First on the fringes and now on Fox News, the Community Reinvestment Act is being blamed by some for today's financial crisis. The argument is that by encouraging FDIC-insured banks to lend in lower income neighborhoods, the government -- read, Democrats, from Jimmy Carter to Bill Clinton -- created the explosion in high interest rate subprime loans.
There's a major factual problem, though: with a single exception, no bank sought CRA credit for its subprime loans. And the investment banks which were purchasing, bundling and securitizing the loans were not covered by CRA. Bear Stearns was not covered by CRA, but was bailed out by the Federal Reserve Board for $30 billion dollars. AIG, an insurance company, was not covered by CRA, but its subprime activities have led to a $75 billion loan from the Federal Reserve, whose chairman Ben Bernanke nevertheless claimed to Inner City Press that the Fed does not control AIG, despite owning warrants for 79% of its stock, click here for that story......
There is more than enough blame to discredit both political parties. But it's not the Community Reinvestment Act statute that's to blame. If anything, the CRA provided a venue by which many of the problems were raised, and some were even solved. When Atlanta-based SunTrust, for example, applied to the Federal Reserve for approval of a merger in Memphis, Fair Finance Watch showed the Fed that SunTrust was lending to a slew of predatory lenders. SunTrust ultimately committed to get out of some of these fields, and had its application approved. That was CRA at work, in a way conveniently not mentioned in the sloppy arguments being advanced.
Inner City Press: Investigative Reporting from the United Nations