Sunday, March 22, 2009

The Trillion-Dollar Bank Shakedown That Bodes Ill

The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.

The CRA's premise sounds unassailable: helping the poor buy and keep homes will stabilize and rebuild city neighborhoods. As enforced today, though, the law portends just the opposite, threatening to undermine the efforts of the upwardly mobile poor by saddling them with neighbors more than usually likely to depress property values by not maintaining their homes adequately or by losing them to foreclosure. The CRA's logic also helps to ensure that inner-city neighborhoods stay poor by discouraging the kinds of investment that might make them better off.

~City Journal article in 2000 by Howard Husock

7 Comments:

At 3/22/2009 4:48 PM, Anonymous Anonymous said...

Thanks for posting this article. Good stuff. I'll make sure to share it.

 
At 3/23/2009 12:44 AM, Anonymous Bill Conerly said...

For a bank to be eligible for the TARP money, it has to have a good CRA score. So an institution that viewed CRA loans as too risky cannot get the bailout money.

 
At 3/23/2009 1:26 AM, Blogger misterjosh said...

Bill... I'm just guessing, but if an institution viewed CRA loans as too risky, they probably won't need bailout money. There are plenty of banks out there doing A-OK.

 
At 3/23/2009 7:55 AM, Blogger 1 said...

misterjosh you might find the following from the Woodstock Institute which claims: 'is a Chicago-based policy and advocacy nonprofit that works locally, nationally, and internationally to promote community reinvestment and economic development in lower-income and minority communities. The Institute's goals are to increase the assets of targeted families and communities and, in particular, increase the supply of affordable rental and owner-occupied housing, and promote small business development, and access to fairly priced and appropriate financial services'...

(Note, these Woodstock folks didn't define the word, "fairly")...

Anyway they have the following on their site: Home Mortgage Disclosure Act & CRA...

Apparently many banks as you've noted misterjosh are doing O.K. and this makes me wonder if its due to their basically ignoring CRA or something else?

 
At 3/23/2009 8:15 AM, Anonymous Anonymous said...

I saw a Credit Union publication there are members of Congress who want to extend the CRA to credit unions. Barney Frank is in favor of it. Great, drill a hole in the keel of the Titanic after it hits the iceberg to let the water flow out.

 
At 3/23/2009 11:26 AM, Blogger misterjosh said...

1 - Thanks for the info. I'm going to go out on a limb here, and surmise that the banks that are doing OK are less interested in the the BS regulations, and more interested in making a buck.

Small banks seem to be doing OK, excepting a few outliers, and I'd guess that the small bank business model is a little different than the big bank model. Small banks are more likely to form a relationship with their customers and by means of that relationship gauge the creditworthiness of a customer.

I'm hoping they're colorblind with regard to lending, because there are plenty of minorities who are a really good risk, and hence opportunity for profit.

 
At 3/23/2009 11:36 AM, Blogger 1 said...

anon @ 8:15 AM says: "I saw a Credit Union publication there are members of Congress who want to extend the CRA to credit unions"...

Oh yeah!

From the Politico:
Credit unions fight off 'punitive' act...

“CRA was established, basically, as a punitive measure” for institutions that had disinvested in lower-income communities and participated in redlining, said Brad Thaler, director of legislative affairs for the National Association of Federal Credit Unions.

 

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