Quote:
Originally Posted by TheAngryPostman
Alot of the banks failures was due to government intervention and the formation of things like the Community Reinvestment Act which forced banks to give out loans to people with spotty credit history and could not pay back the money. That was instituted when Carter was in office and the cumulative effects of that legislation have just recently emerged.
Alot of these types of problems can be traced back to big government rather than big business.
|
From Businessweek.
Community Reinvestment Act had nothing to do with subprime crisis
Posted by: Aaron Pressman on September 29
Quote:
Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we?re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act ? a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.
The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it?s even more ridiculous when you consider that most subprime loans were made by firms that aren?t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: ?In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.?
|
Lack of supervision fostered by the Bush administration was a major factor in the meltdown.