Still Wrong: Crowley Revives Myth That Community Reinvestment Act Caused Financial Crisis
Fox News' Monica Crowley revived the false claim that the Community Reinvestment Act (CRA) was "what caused" the financial crisis. In fact, the CRA "was not a significant factor in subprime lending or the crisis."
Crowley Claims The CRA Was "What Caused The Financial Crisis"
Crowley: "They Put The Guns To The Banks' Heads, And Said You Have Got To Do These Subprime Loans." On the October 10 broadcast of Fox News' Your World with Neil Cavuto, Fox News contributor Monica Crowley claimed the Occupy Wall Street protestors should be "protesting the Democrat Party," because the Community Reinvestment Act (CRA) "put the guns to the banks' heads, and said, 'You have got to do these subprime loans.' " From the broadcast:
CROWLEY: Look, if they had any fundamental understanding about what caused the financial crisis, they would be protesting the Democrat Party. Why? You go all the way back to the Community Reinvestment Act, under Jimmy Carter, expanded under Bill and Hillary Clinton -- they put the guns to the banks' heads, and said, "You have got to do these subprime loans --"
ERIC BOLLING: (guest host) Alright.
CROWLEY: -- And so on.
BOLLING: Alright.
CROWLEY: That's what caused this mess. Protest them. [Fox News, Your World with Neil Cavuto, 10/10/11, via Media Matters]
But Experts Agree: The CRA Did Not Cause The Financial Crisis
Financial Crisis Inquiry Commission: "The CRA Was Not A Significant Factor In Subprime Lending Or The Crisis." In its final report, submitted in January 2011, the Financial Crisis Inquiry Commission concluded:
The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of the high cost loans - a proxy for subprime loans - had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law. [The Financial Crisis Inquiry Report, January 2011]
Federal Reserve: "We Find Little Evidence That Either the CRA Or The GSE [Government-Sponsored Enterprise] goals played a significant role in the subprime crisis." In an August 3 report, Federal Reserve economists Robert Avery and Kenneth Brevoort concluded:
We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes. [Federal Reserve, 8/3/11]
Krugman: The CRA "Was Irrelevant To The Subprime Boom." In a June 3, 2010, post on his New York Times blog, Nobel Prize-winning economist Paul Krugman pointed out, "The Community Reinvestment Act of 1977 was irrelevant to the subprime boom, which was overwhelmingly driven by loan originators not subject to the Act." [The New York Times, 6/3/10]
Bernanke: The CRA Was Not "At The Root Of, Or Otherwise Contributed In Any Substantive Way To, The Current Mortgage Difficulties." In a November 25, 2008, letter, Federal Reserve chairman Ben 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." [Federal Reserve, 11/25/08]
Most Subprime Mortgages Not Issued By Institutions Under CRA. In a paper published on the website of the Federal Reserve Bank of San Francisco, Michigan law professor Michael Barr stated that as of 2005, "Only 25 percent of subprime loans were made by banks and thrifts, and the Federal Reserve reports that only six percent of subprime loans were CRA-eligible." ["Community Reinvestment Emerging from the Housing Crisis," Michael S. Barr, accessed 10/11/11]
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, in a March 2008 speech criticized efforts to blame CRA lending for weaknesses in the mortgage market, stating:
There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term. [Federal Reserve Bank of San Francisco, 3/31/08]
Slate's Gross: "The 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, wrote that "the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd" and added, "[L]ending 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." [Slate, 10/7/08]
The problem with sub-prime lending was that it took place largely outside the regulated financial system. And it's what's missing from the available home mortgage products today.
The GNoP won't address the issue that much of the sub-prime lending was predatory, as well.
Well, once more, maybe. It is outright false. CRA loans outperformed the market. The vast bulk of the subprime loans weren't made by banks but by unregulated mortgage bankers that functioned as table-funding fronts for the Wall Street investment banks that couldn't get enough of the stuff to repackage via securitization.
In fact, even then, they literally couldn't get enough of the crap. So they created derivatives that mimicked subprime mortgages and securitized those as though the positions were backed by actual loans, when they were just promises to pay by the likes of AIG if subprime loans owned by somebody else went belly-up. Read The Big Short for a somewhat oversimplified explanation, but ultimately a true one.
Still, these people cling to their BS narrative that the mortgage and real estate crises were all caused by government-mandated lending to minorities. IT IS NOT SO!!!!!
Presto change-oh and the bondholders are synthetically long a position in subprime mortgage loans.
Which is how the worldwide exposure to U.S. mortgage loans, and in particular U.S. subprime mortgage loans, was expressed in multiples of all such loans that were actually outstanding.
And that, not CRA was how this crisis happened, you nitwits at Fox. Stop lying, just cut it out. Some of us were there, watching in horror as this all went down to its completely predictable denouement.
Crowley is either deeply stupid or deeply dishonest. Maybe both. All around, one particularly nasty piece of work.
i can deal with people who have a different opinion about things, bigger gov, smaller gov, but i can't deal with small minded idiots.
i have a friend that we are pretty close to politicly, he is more conserv. than i but its the little stuff. he is disgusted with the evangelicals and may for the first time since he was in his 20's (50's now) that he might vote for a dem. where did the eisenhowers, goldwaters and nelson rockefellers go? i feel they are not your cup of tea but at least they weren't wacos.
That's especially true in debates, where the role of the moderator is essentially to pose questions, allow candidates to respond and make sure that everyone gets the same amount of time to air his/her views and talking points. In an actual debate, where each debater is arguing a different point of view, there's at least a chance that the audience will get enough information to make up its own mind, but staged political debates -- particularly the one-party primary debates -- are just platforms for the candidates to try to top each other with one-liners. "There you go again."