Representatives Bachmann and Ellison have already engaged in a call and response about the alleged role of the Community Reinvestment Act in shaping the current financial climate.
Turns out that Bachmann's statement was a dog whistle for her BFF Brian Davis, the GOP candidate in MN-01. He supplied the reprise to the Mankato Free Press:
Walz’s Republican opponent agreed with the vote, but placed most of the blame for the financial crisis on government — including actions by the Clinton administration to promote low-income home ownership — rather than Wall Street.
“I’m pleased to see the bailout was rejected,” said Brian Davis, R-Rochester, not faulting Walz’s vote. “I imagine he and I propose a different solution to all this.”
Davis said large amounts of taxpayer money should not be risked on a bailout plan until underlying causes of the subprime mortgage mess are identified and fixed.
Davis focused first on the Community Reinvestment Act, originally passed in 1977 to prohibit lenders from avoiding offering loans in low-income areas. The administration of President Bill Clinton became aggressive in enforcing the act, pressuring banks to offer mortgages to risky applicants, Davis said.
“That’s what started it,” he said.
Congresswoman Michele Bachmann, a Minnesota Republican, came under criticism last week when she also placed blame on the Community Reinvestment Act. Bachmann said during a congressional hearing that the Clinton administration pushed the issuance of home loans “on the basis of race and little else,” according to the newspaper Roll Call.
The comment prompted the Congressional Black Caucus to write a letter to House Minority Leader John Boehner rejecting the “assertion that ‘minorities’ caused the current financial crisis.”
Davis said he doesn’t oppose the idea of promoting responsible lending to low-income groups but believes the Clinton administration was too aggressive in pushing the idea.
“The goals of the program are laudable,” he said.
We'll have more debunking this new article of right wing faith, but let's start with Business Week's Aaron Pressman in Community Reinvestment Act had nothing to do with subprime crisis. We post the entirety for our click-impaired readers:
Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.
The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”
Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).
Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops.
Better targets for blame in government circles might be the 2000 law which ensured that credit default swaps would remain unregulated, the SEC’s puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital and that same agency’s failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt. (Barry Ritholtz had an excellent and more comprehensive survey of how Washington contributed to the crisis in this week’s Barron’s.)
There’s plenty more good reading on the CRA and the subprime crisis out in the blogosphere. Ellen Seidman, who headed the Office of Thrift Supervision in the late 90s, has written several fact-filled posts about the CRA controversey, including one just last week. University of Oregon professor and economist Mark Thoma has also defended the CRA on his blog. I also learned something from a post back in April by Robert Gordon, a senior fellow at the Center for American Progress, which ends with this ditty:
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. And that is not political correctness. It is correctness.
Enough said.The Free Press article, Walz, Davis oppose bailout plan, reports on Walz's reasons for his no vote as well.
Photo: Brian Davis and his financial advisor, Rep. Michele Bachmann. She's back in the news today--this time for deflating a bubbling GOP talking point about yesterday's failied vote. See Roll Call's Bachmann Inadvertently Knocks Down GOP Explanation. My, my.
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