A lot of Republicans are placing all of the blame of the subprime mortgage meltdown and subsequent Wall Street bailout on the Community Reinvestment Act of 1977. When placing this blame, these cretins usually use keywords like "minority", "low income", and "urban". What these commentators don't say is that less than 25% of the subprime loans implicated in this mess were issued by CRA regulated banks. What they also don't say is that Phil Gramm tried back in 1998 to kill the CRA by having his Financial Services Modernization Act expand the number of banks that would NOT be covered by CRA review.
If McCain uses this line of attack - saying that this mess was caused by the CRA, like he did back in
April, Obama should remind McCain that it was under his president, George Bush, that the Office of Thrift Supervision weakened the CRA with new rules that would allow thrifts with 1 billion or more to be exempt from the investment and service tests under the CRA. See House Democrats letter to the OTC here ---->
http://financialservices.house.gov/Ltr-OTS%20Gilleran%20re%20CRA%204.12.05.pdf . It has been
shown that banks covered by the CRA loaned more responsibly and were encouraged by the language of the act itself to do so. The CRA did not force anyone to make a bad loan.
What Obama should note is that the subprime loans that are at play here were made by independent mortgage lenders who were not regulated at all by the CRA and at times not even regulated. It is arguable that because of the loosening of CRA rules, many banks who were formerly more stringently regulated under the CRA were not making the more low interest, affordable loans they used to and were driving whole neighborhoods into the subprime mortgage market, where predatory lenders were taking advantage of people. Some of the banks regulated by the CRA had affiliates that made these subprime loans, and these banks would then use these loans as CRA credit and all of the agencies charged with examining these banks looked the other way. Could these same borrowers have qualified for the more low interest loans typically offered by banks? Studies show that yes, a lot of these people could have.
Obama also should mention that it was under McCain's president that the SEC waived its leverage rules in 2004. There were only five firms - Goldman Sachs, Merrill Lunch, Lehman Brothers, Bear Stearns, and Morgan Stanly - who were given this exemption. They were allowed to leverage up to 40 to 1 in debt to net capital ratios. And they did. As soon as they were given this exemption, they immediately gorged themselves on these mortgage-backed securities. They wanted the quick buck.
What would have happened if the GEORGE BUSH'S SEC had NOT waived these leverage rules in 2004? Perhaps Wall Street would not be asking for a bailout today to the tune of 700 Billion now and more later. The mostly NON-CRA regulated lenders would not have had the MARKET available to sell off all of these subprime loans if Wall Street did not have the capability of taking them on.
This wasn't about giving poor and minority folks mortgages. These mortgages were just the means to justify the ends of making a lot of money on these securities. Wall Street needed a new, fresh investment vehicle to fuel the market after the Tech Bubble. The mortgages were basically an afterthought. That's why people were screwed into these loans. They had the highest return. If you could make extreme profits and sell these subprime loans with virtually no regulation or oversight, and then bundle them as "securities", wouldn't you try to get as MANY folks in them as possible. I doubt the government had to twist anybody's arms to get them to do that. It was a gorge fest on Wall Street, plain and simple.
Obama also needs to mention that it was the Commodities Futures Modernization Act, also pushed by Gramm, that allowed the writing of credit default swaps by Hedge Funds, investments banks and insurance companies to go unregulated by anyone. A lot of the CDS's issued on speculation could arguably be said to have caused panic in equity holders who then panicked, causing a ripple effect, which also in turn created a self-fulfilling prophesy.
It seems to me that Republicans are trying to place all of the blame on a 30 year old bank ratings act in an effort to totally ignore the massive deregulation by George Bush and Republicans like Gramm.
SEC waives leverage rules
CRA weakened
Gramm-Leach-Bliley Act
Commodities Futures Act
GREENSPAN
For them to try to blame this all on the "Blacks" and the "poor", is just a sad commentary on how pathetic that party is. The rules set up to prevent all of this were brushed aside to HELP these banks make more money at the expense of the average American.
That's why it is NO surprise that the Secretary of the Treasury is a former CEO of Godlman Sachs. That's why it is also not surprising that the recently installed CEO of Wachovia was a Treasury undersecretary back in July.
I see all of this talk about the CRA as nothing more than a tactic to try to build support for the Republican's aim of getting rid of the CRA all together so that banks have it easier with their mergers and acquisitions. That's why you hear all of this extraneous talk about ACORN. These people think ACORN is the prime beneficiary of the CRA and that they "extort" banks. They want MORE deregulation, not less. They want LOOSER restrictions, not more. Even in this bailout bill, they managed to get in there a provision that would allow banks to have a zero reserve ratio.
This Orwellian usage of language needs to stop.
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