Mark Winston Griffith
New York Sun editorial is subprime piece of fiction
Every now and then, there comes a piece of political writing that is so historically inaccurate, poorly written and morally retarded in it's argument that it takes your breath away.
Last week's New York Sun editorial by Jerry Bowyer, Don't Blame the Markets, which actually blames the Community Reinvestment Act for the subprime mortgage crisis, is such a piece of writing.
Ordinarily, something so ridiculous wouldn't warrant a response. But it puts forward a poisonous argument that could somehow become a popular talking point for conservatives eager to blame everybody but the subprime mortgage industry and government regulators for the subprime debacle.
Bowyer's central thesis is that the Community Reinvestment Act, the 1977 landmark legislation designed to encourage depository instituitons to provide credit to areas where they do business, was championed by "hard left political hustlers who spent the early 1990s pushing risky mortgages on home lenders." In the regulatory Neverland that Bowyer creates, the federal government looms powerfully over banks and realtors, punishing them if they don't make charity loans to undeserving "minority" borrowers.
First of all, CRA doesn't regulate realtors.
Secondly, although some of the nation's largest banks were indeed heavily involved and invested in the subprime mortgage industry, the subprime mortgage industry was dominated and in many ways fueled by non-depository institutions that are not subject to the CRA. Not only were institutions like Countrywide and Ameriquest operating outside the purview of the CRA, but so too were the brokers, security firms, subprime loan investors and others who propped up the industry.
Subprime loans were made for one reason and one reason only: They made a lot of people a lot of money, at least originally. I don't know anyone in the subprime lending industry who would claim otherwise.
The truth is, as the financial services industry has changed dramatically since 1977 and more lending action has shifted beyond depository institutions, the CRA has grown weaker. 98% of the institutions subject to CRA examinations receive a "satisfactory" rating or better, which means a bank has to work hard to earn a negative CRA rating. The idea that a bank is quaking in its boots at the sound of the federal regulator carrying a big CRA stick is a piece of fiction. Not even banks are claiming that these days.
If anything, the CRA needs to be re-imagined and strengthened. The subprime debacle was caused by an absence of strong regulatory oversight and enforcement, not a preponderance of it.
But I'm sure Bowyer knows that. His editorial (Who is editing this stuff at the Sun anyway?) was designed to spray graffiti over the clear writing on the wall, which is calling for regulatory intervention in what was a market free-for-all.