Wednesday, October 8, 2008

Debunking the rumor that the Community Reinvestment Act caused the subprime lending failure

I've heard countless times during the election cycle that our financial woes are all rooted in the Community Reinvestment Act (CRA). http://www.fdic.gov/regulations/laws/rules/6500-2515.html

It is my position that this is not the case. The CRA while providing a requirement for regulated financial institutions to provide it's services (including credit) to the communities in which they are chartered to do business. NOWHERE in the CRA does it mandate making irresponsible loans.

First off, have you actually read the CRA?. It repeatedly mentions that the regulated institutions make the loans within the bounds of "consistent with the safe and sound operation" of said institution.

Nowhere does it suggest that loans be given to those who are unable to pay, or that loans should be made beyond the means of the applicant. The purpose was to give those poorer communities the same opportunity as those in more affluent regions. This stemmed from a practice called "redlining" that was popular in the 60s and 70s. (Redlining is the practice of denying or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain often racially determined areas. )

In SEC. 802:
"It is the purpose of this title to require each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions."

In SEC 804:
"SEC. 804. (a) IN GENERAL.--In connection with its examination of a financial institution, the appropriate Federal financial supervisory agency shall-- (1) assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution; and "

Second, the CRA specifically targets "regulated financial institutions", which by definition in the act are "insured depository institutions"; ie: those commercial banks covered by FDIC.
This holds no bearing on the non-bank mortgage companies, which aren't regulated under the CRA. Yet these non-bank mortgages account for a significant percentage of all of the failed sub-prime loans.

Ultimately, the law isn't what made the institutions give out these loans, it was generated from profit motive. Greed is what drove the problem, pure and simple. Now, with the bailout, we've given Wall Street greed yet another bonus check with tax-payer sponsored Wall Street Welfare.

Nice try Mr. Conservative. Next time, try checking your facts.

Friday, October 3, 2008

Offshore Windfarms at Last

Looks like somebody is actually listening about the cry for US Energy Independence. It's the first step down a long road, but seems a sound idea.

http://cityroom.blogs.nytimes.com/2008/10/03/new-jersey-approves-offshore-wind-farm/index.html?hp

For those of us who are land locked, look at the Pickens Plan.

u2b

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