[PAA-Discuss] 11 racist lies Neocons tell to avoid blaming Wall Street for the crisis

[ChasMauch at aol.com]

11 Racist Lies Conservatives Tell to  Avoid Blaming Wall Street for the 
Financial Crisis
By Sara Robinson, Campaign for America's  Future
Posted on October 2, 2008, Printed on October 5,  2008
http://www.alternet.org/story/101127/
Conservative pundits and politicians have piled onto the excuse like  
shipwreck victims clinging to a passing log: The real blame for the  current economic 
crisis, conservatives would have you believe, lies not  with anything they 
did, but rather with the 1977 Community Reinvestment  Act -- a successful 
Carter-era program designed to get banks to stop  covert discrimination, and 
encourage them to invest their money in  low-income neighborhoods.
It's always easy to tell when the cons are completely lost at sea.  The lies 
get more absurdly preposterous -- and also more transparently  self-serving. 
But when they go so far as to openly and unapologetically  latch onto race and 
class as an excuse for their woes (which this is, at  its heart), you know 
they're taking on water fast -- and scared of going  under entirely.
You can hear the conservative commentators burbling this CRA fable  from the 
Wall Street Journal to the National Review; from Rush to YouTube.  Neil Cavuto 
put the essence of th e argument right out there on Fox News:  "Loaning to 
minorities and risky folks is a disaster." See! It's all the  liberals' fault 
for insisting on social justice!
Conservatives are twisting the facts beyond the breaking point to  support 
their revisionist history. But don't be fooled: the financial  crisis was caused 
by conservative financial follies and bankers run amok  and nothing more. 
Here are the basic myths they're trying to push about  the CRA -- and the facts 
that will enable you to fire back.
1. The CRA was a liberal boondoggle designed to con banks  into funding 
housing for undeserving, unqualified  minorities.
False. The Community Reinvestment Act of 1977 was  the result of decades of 
disinvestment in poor and working-class  neighborhoods. It was designed to put 
an end to "red-lining" -- a  widespread practice in which banks refused to 
write mortgages for houses  in certain neighborhoods, no matter who was applying 
or how creditworthy  they were.
 
The Fair Housing Act of 1968 had made it illegal for real estate  agents and 
banks to discriminate against homeowners on the basis of race.  Red-lining 
soon emerged as a not-so-subtle way to continue this  discrimination, by 
declaring, ahem, certain neighborhoods as unfit to  invest in. By 1977, the results of 
this practice were becoming all too  obvious, so Congress stepped and gave 
lenders a choice: if you want the  FDIC to insure your deposits, you need to 
knock off the redlining. 
The CRA didn't force lenders to make riskier loans than they would  have 
otherwise. It simply required that they take each applicant on his or  her own 
merits, and give people in poorer neighborhoods the same fair  chance at a 
mortgage that everybody else in town was getting. It wasn't  about preferential 
treatment. It was just about basic equality.
2. The CRA forced banks to lower their standards and make  loans to all 
low-income families and people with poor credit -- and find  banks that refused to 
comply.
No. The CRA has encouraged banks to lend fairly and  responsibly for over 30 
years. It does not impose fines. It does  periodically examine FDIC-backed 
banks, and issues them a CRA compliance  rating. A highly-rated bank must meet 
the financing needs of as many  community members as possible, and must not 
discriminate against racial  and ethnic groups or certain neighborhoods. However, 
a bank will not  receive a high rating unless it is also maintains "safe and 
sound banking  practices."
In other words, the CRA requires banks to lend to working-class  families and 
people of color -- but only when those people have been  deemed as 
creditworthy as anyone else.
3. The housing bubble burst when too many people with home  loans mandated by 
the Community Reinvestment Act failed to make their  mortgage payments. 
False. The CRA only applies to FDIC member banks and  thrifts. Back in the 
1970s, these institutions were responsible for most  of the country's mortgage 
lending. But starting in the 80s and on up to  the present, we saw a huge boom 
in lending businesses-- such as finance  companies like Countrywide -- that 
weren't banks, and didn't take deposits  that required FDIC insurance. Thus, 
they didn't have any obligation to the  CRA. And they were free to set their own 
lending standards, which were  often far less cautious than those required of 
FDIC-insured banks.
 
4. The bulk of the "junk" loans that have been packaged into  mortgage-based 
securities are CRA loans.
False. An analysis of Home Mortgage Disclosure Act  (HMDA) data in the 
country's 15 biggest metropolitan areas found that  84.3% of the high-cost loans 
made in 2006 were originated by non-CRA  lenders -- including 83% of high-cost 
loans to low- and moderate-income  individuals. The Federal Reserve notes that, 
across the country, non-CRA  lenders were twice as likely as CRA lenders to 
issue subprime loans to  vulnerable borrowers. Furthermore, the Fed also reports 
that responsible  mortgages made by CRA lenders have about the same low rate 
of foreclosure  as other traditional mortgages.
5. If the government had just set the lenders free to do  their thing, the 
market would have prevented this. It's just another  example of how government 
oversight always leads to market  failure.
Wrong again, buckaroo. As explained just above, up  to four-fifths of these 
loans were issued by financial institutions that  operated with little or no 
federal regulatory oversight. In fact, in 2006,  only one of the top 25 subprime 
lenders was a CRA institution. A few  others were mortgage/finance company 
affiliates of CRA-covered lenders;  but even these were separate businesses that 
didn't operate under CRA  rules (including Countrywide, CitiMortgage, and 
Wells Fargo Home  Mortgage). Likewise: the vast majority of the top 20 issuers of 
risky  interest-only and option ARM loans were not CRA-affiliated lenders.
If anything, the CRA example proves -- once again -- that government  
oversight not only works; it's essential to maintain safe and sane capital  markets.
6. The CRA is just another failed liberal handout  program.
 
No. The benefits of CRA have been substantial.  Robert Rubin recently 
estimated that the law has channeled upwards of $1  trillion into distressed 
neighborhoods across the country -- including  both inner cities and rural areas 
without much access to investment funds  -- without putting up any taxpayer money 
beyond what it takes to operate  the CRA itself. In these areas, home ownership 
is up -- and with it, the  local tax base, which means more parks, more cops, 
more street repairs,  and so on. There's more decent rental housing, too, 
because landlords can  get loans for upgrades and improvements.
Small business ownership is also up. Low-income communities have  become more 
attractive to outside investors, and more able to support  community 
redevelopment efforts. And in places where people once cashed  their paychecks at the 
convenience store and depended on payday loans,  there are now full-service 
bank branches offering the same affordable  financial services people in better 
neighborhoods take for granted.
The cons like to talk about the "ownership society." There is no  ownership 
without access to capital. For 30 years, the CRA has been making  private 
capital available to qualified people who want to bootstrap  themselves into home 
and business ownership, and a secure place in the  middle class.
7. OK -- if it works so well, why do we still need it?  Haven't the banks 
finally figured by now out that redlining was a stupid  idea?
If only. The very fact that the conservatives are  trying to blame the mess 
on the CRA is, in itself, ample proof that we  still need anti-redlining laws 
on the books. Fifty years into the civil  rights era, and they're still arguing 
that it should be acceptable to  permanently exclude people from the capital 
markets on the basis of race  and class. Different millennium, same ugly 
story: "See? This is what  happens when you give money to minorities and poor 
people. You end up  wrecking the country!"
In other words: no, they haven't learned their lesson; and yes, they  still 
believe in red-lining as much as they ever did. Racism is alive and  well, and 
there are still plenty of Americans w ho would bring back  housing 
discrimination in a heartbeat if the law allowed them to. Which is  precisely why we 
can't allow them to.
 
8. If we can't blame the CRA, then who can we blame? How  about the federal 
banking agencies, which outright told banks to go ahead  and adopt risky 
lending practices? In particular, a 1992 Boston Federal  Reserve Bank publication, 
Closing the Credit Gap: A Guide to Equal  Opportunity Lending, told the banks 
that it was OK to adopt unsound  lending practices.
Nice try, but still wrong. According to the National  Community Reinvestment 
Association, the document cited above offered three  new guidelines to lenders 
-- none of which are applicable to the current  subprime crisis.
The first guideline was that the lack of proper credit history  shouldn't be 
counted as a negative factor for potential homebuyers. Banks  could use other 
evidence to assess the borrower's payment habits,  including the timely 
payment of rent, utility bills, and other scheduled  loans. Borrows still need to 
prove that they're reliable; they're just  allowed to use documentation besides 
a credit report.
The second was to remind bankers that some households with debt  ratios above 
the standard 28/36 criteria might still qualify for home  loans. This 
guideline is very conservative by today's standards. Many  problematic subprime loans 
were granted to borrowers with debt-to-income  ratios above 50 percent, which 
was in no way sanctioned by t he 1992  guidance document.
The third was that lenders could count Social Security, second jobs,  and 
other verifiable income streams as valid sources of income when  evaluating loan 
applications. But most subprime loans failures aren't  related to alternative 
income sources. The real problem has been with  "liars' loans," in which the 
reported income streams are never verified at  all.
9. Well, then...it must be Bill Clinton's fault, right? In  1995, Clinton 
changed the Community Reinvestment Act to allow the  securitization of CRA and 
subprime mortgages. That's what started all  this.
 
Talking point regurgitation at its worst. The 1995  revisions to the CRA only 
changed the way in which a bank's CRA compliance  is evaluated. They made no 
mention of mortgage securitization at all.  Under the 1995 rules, banks are 
rewarded only for making mortgages in  their communities, not for re-selling 
mortgages as securities.
10. OK, then -- it's the Democratic Congress's fault!  President Bush and 
Senator McCain tried to stop the subprime mortgage  crisis, but Democrats blocked 
their efforts.
It's not lying. It's a gift for fiction. This one's  actually made it into a 
TV ad. The claim is that Bush and McCain supported  the Federal Housing 
Enterprise Regulatory Reform Act of 2005, which would  have created a new government 
agency to oversee Fannie Mae and Freddie Mac  and other federal housing 
programs.
Howe ver, there's no pony in this manure pile. This bill would have  done 
nothing to stop the rash of subprime lending that preceded the  housing bubble. 
It only provided oversight for Fannie and Freddie -- but  it said nothing at 
all about the companies that issued subprime  mortgages.
11. No serious conservative economist would have ever  approved of the CRA.
False. In March 2007, Federal Board Chairman  Bernanke -- no liberal he -- 
noted that CRA has helped institutions  discover and enter new markets that may 
have been previously under-served  and ignored by insured depositories.
 
These myths are floating around everywhere this week -- a Big Lie  that's 
being repeated so often that Americans may well start to believe  it. The real 
objective of the "blame the CRA" campaign is to pre-emptively  discredit any 
future progressive proposals that involve using government  regulation to make 
the capital markets behave -- and to get the  free-market fundamentalist 
faithful back in the fold.
Time to fire back, and replace the Big Lie with some real truth.  
Sara Robinson is a twenty-year veteran of Silicon Valley, and is  launching a 
second career as a strategic foresight analyst. When she's not  studying 
change theories and reactionary movements, you can find her  singing the alto part 
over at Orcinus. She lives in Vancouver, BC with her  husband and two 
teenagers. 
© 2008 Campaign for America's Future All  rights reserved.
View this story online at:  http://www.alternet.org/story/101127/






  
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