Quick Fact: IBD again pushing discredited claim that affordable housing caused financial collapse
An Investor's Business Daily editorial advanced the discredited claim that efforts to "facilitate homeownership among minorities" and the Community Reinvestment Act (CRA) "undermined the financial system" and "started" the "financial collapse." Numerous experts, including Federal Reserve chairman Ben Bernanke, have said that the CRA did not contribute to the crisis "in any substantive way."
IBD claim that CRA "started it all" echoes previously debunked claim that the law "forced banks to make many more subprime loans"
IBD states that minority homeownership initiatives and "the Community Reinvestment Act ... started it all." From the January 21 IBD editorial:
But Wall Street didn't cause the collapse -- government did . And this call for tougher rules is yet another attempt to escape blame. All Glass-Steagall did was let bank holding companies buy into investment banks. What undermined the financial system was a fanatical application of rules aimed at getting banks to lend as much money as possible to facilitate homeownership among minorities.
It was the government, not Wall Street, that created the subprime market by compelling banks to make bad loans and urging Fannie Mae and Freddie Mac to cash out the banks by putting more and more of the toxic mortgages on their balance sheets.
The administration apparently hasn't given a thought to limiting, let alone blocking the proposed expansion of, the Community Reinvestment Act that started it all. Or to reining in Fannie Mae and Freddie Mac, the government-created monsters that aided and abetted the meltdown.
Echoing numerous other conservatives, previous IBD editorial claimed that CRA "forced banks to make many more subprime loans." A September 25, 2008, Investor's Business Daily editorial claimed the CRA "forced banks to make many more subprime loans." As Media Matters for America has documented, numerous media conservatives have advanced the discredited claim that the CRA was responsible for the financial crisis.
FACT: Experts say CRA did not contribute to financial crisis "in any substantive way"
Bernanke: Experience "runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties." In a November 25, 2008, letter, Bernanke stated: "Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties."
SF Reserve Bank's Yellen: "[S]tudies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households." Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, stated in a March 2008 speech that "studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households."
Slate's Gross: "[t]he notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd." In an October 7, 2008, Slate article, Daniel Gross, a business columnist for Newsweek and author of Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, criticized the notion that affordable housing initiatives caused the financial crisis, writing that "the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd" and that "lending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all." Gross further explained, "On the other hand, lending money recklessly to obscenely rich white guys ... can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity."
As an Investor I am really going to follow the advice I get from Investor's Business Daily because, although they get all the facts completely wrong and clearly have a hard time dealing with reality, they support my beliefs. I am ready to put all my money into anything these guys recommend!
I bet they sell Magic Unicorns too!!!!
In short, Investor's Business Daily is blaming the depression on uppity darkies and the idea that they might dare be middle class. It can't be rich white guys' fault. Personal responsibility doesn't apply to the rich elites.
when the government FORCES banks to mke loans to dubious borrowers well then the bank has no choice....
Now lets do a little critical thinking.
Would you loan someone $1000.00 that had no reasonable chance of paying you back... OF COURSE NOT. So now explain exactly how a bank make loans that can't be paid back and make a profit???? hmmm... duh, you folks are foolish at best, pathetic is more likely....
And the banks were gain from sub prime mortgages at first, as the borrower defaulted so the bank repossessed the house. The property market was booming at the time, becoming MORE expensive, so when they repossessed the house it was worth more than they lent to the original owner. As such, they made a profit and hoped it wouldn't be them that were caught with the bad loans as the market peaked.
This was all learnt in a High School economics class. Not one student had trouble seeing how the banks made a profit or how it inevitably collapsed. You are the foolish, pathetic one if you're been outsmarted by high schoolers such as I.