I’m amazed at the lengths people will go to in their attempts to dismiss any evidence of the role the CRA played in loosening lending standards. Perhaps the worst argument they make is directed against a claim that I’ve never heard anyone make—the imaginary claim that the CRA somehow caused the entire mortgage mess, financial crisis and economic depression.
Over at DealScape Matthew Wurtzel takes me to task for allegedly claiming that the CRA was “the main culprit for the credit crisis.” Barry Ritholtz says that my argument amounts to a claim that “it was all the CRA’s fault.” Both characterizations are so far off the mark that they almost amount to an admission of the actual point I raised about CRA cupability in requiring, encouraging and nudging banks toward lax lending practices.
Of all the responses to my recent re-assessment of the CRA, only Felix Salmon has come close by saying that I decided that CRA “was party responsible for bad lending practices.”
Just to make things clear, I think that to really blow things up we needed low interest rates, the growth of securitization, a glut of foreign savings pouring into the US, a lack of yield from other asset classes, ratings agencies operating with minimal knowledge but lots of optimism, a faith in the ever-rising housing market, high oil prices, consumers looking to flip high-interest unsecured debt into lower-interest home-equity debt, a short-term federal budget surplus eating into the availability of Treasury debt, Fannie and Freddie’s mixed mission, the evaporation of profits from investment banking and brokerage, unrestrained shareholder demand for high profit margins, off-balance sheet financial innovations such as SIVs, unconvincing and non-influential risk managers, risk-pricing of MBS based on CDS pricing, a White House dedicated to expanding low-income and minority home ownership for partisan political reasons, economists touting the positive externalities of home-ownership, a poor understanding that heterogeneous populations have different responses to market movements and over-reliance on centralized and automated mortgage underwriting.
But there really shouldn’t be anymore room to doubt the significant role played by the CRA and the regulators charged with enforcing it.
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