As our financial system is facing one of the worst crises in living memory, the American people have predictably been looking for heads to roll. While the usual scapegoats – greedy banks and risk-averse investors – were thrown to the lions almost instinctively, there has been a different consensus taking shape among some conservatives about who’s to blame in all of this.
Forged in the fires of the blogosphere and working its way into the public discourse, the general story being sold is that this entire crisis is the consequence of liberal programs offering loans to irresponsible minorities, with the end result of $700 billion worth of debt placed onto the backs of hardworking, white Americans. One doesn’t have to spend too much time reading between the lines to see that they’re attempting to take a mind-bogglingly complex problem that has engulfed the global credit market and scapegoat low-income, urban black Americans.
Anyway, let’s do them a courtesy they probably don’t deserve and take a look at their case. The main thrust of the argument is that the Community Reinvestment Act (CRA) is the culprit in all of this. The bill was passed under President Carter in 1977 and later amended several times, including in 1995 and 1999 under President Clinton. According to conservative columnist Stanley Kurtz, the CRA “was meant to encourage banks to make loans to high-risk borrowers, often minorities living in unstable neighborhoods.”
So, if the CRA was the gun, who was the gunman? Apparently, the Association of Community Organizations for Reform Now (ACORN) – a group with strong ties to the black community – and their liberal allies in the Democratic Party were responsible for passing this “socialist” program that pressured poor, defenseless banks into offering low-income blacks home loans for which they were not qualified.
Race-baiting aside, this line of reasoning makes some sense given the players involved, but it quickly folds under even the most cursory of examinations.
Let’s start with ACORN – a longtime Republican punching bag – because it’s clearly the more laughable part. To hear the McCain campaign tell it, ACORN is almost Illuminati-like in their influence of the banking and loan industry. In one of their new ads, his campaign claims that “ACORN forced banks to issue risky home loans.” However, any reasonable appraisal would show them to be a relatively ineffectual nonprofit group in a sea of other mildly powerful players. This accusation also ignores the fact that ACORN has been speaking out against predatory subprime lending since the late 1990s.
Nevertheless, even if one concedes that ACORN was responsible for the CRA, it requires a pretty strange interpretation of the facts to blame the CRA for this crisis. While it’s true that the act gave special attention to inner-city minorities who were being systematically discriminated against by the banking and loan industry, its larger goal was to revitalize America’s deteriorating cities by providing low- and middle-income earners with equal access to loans.
Furthermore, according to Traiger & Hinckley – a law firm that advises lending institutions on CRA compliance – this act actually deterred the irresponsible lending at the heart of this crisis. Banks and mortgage companies that fell under its regulation were less likely to make subprime loans and at lower interest rates when they did. In all, Federal Reserve surveys indicate that CRA-regulated institutions probably only issued about 25 percent of the loans in question, while independent lenders accounted for more than 50 percent.
The attempt being made here is clearly to throw the blame onto “socialist” schemes cooked up by liberals and irresponsible black Americans who bit off more than they could chew in taking out the loans. Frankly, we can’t afford this kind of reckless politics right now.
The writer is a graduate student in American politics.