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Wednesday, October 01, 2008

Why are we in this mess? -The best-laid plans of mice and liberals...

Everyone seems to be asking the question: "Why are we in this banking mess?"

The answer is complicated, far more complicated than what I would claim to be able to fully explain. However, having said that, some fairly simple research reveals at least part of the answer, and it goes all the way back to the Community Reinvestment Act (CRA), passed by Congress in 1977 during the Carter administration.

According to their web site, the CRA was "intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods..." In other words, the intent was to enable people with a lower credit rating to purchase a home. That sounds like a good and probably well-intentioned idea, but you know what they say about the best-laid plans of mice and men.

CRA compliance is required for banks to receive approval for merger, to open a new branch, to diversify into a new line of business, essentially to conduct business. Compliance is rated by four federal agencies: the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Comptroller of the Currency, and the Office of Thrift Supervision. However, until 1995, compliance was fairly easy. Writing in City Journal, Howard Husock states, "During the seventies and eighties, CRA enforcement was perfunctory. Regulators asked banks to demonstrate that they were trying to reach their entire "assessment area" by advertising in minority-oriented newspapers or by sending their executives to serve on the boards of local community groups." However, this all changed in 1995 when the Clinton administration made CRA compliance much more difficult.

The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A's for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods?

The result has been bad business practices forced on the banking industry. Lending institutions have been forced to give home loans to unqualified borrowers. In the February 5, 2008 New York Post, Stan Liebowitz writes that a Fannie Mae Foundation report points to one lender as an example of compliance to CRA. That lender committed $1 billion to high-risk borrowers in 1992, $80 billion by 1999, and $600 billion by 2003. That lender is Countrywide, which was on the verge of bankruptcy when it recently merged with Bank of America.

Husock adds that the new Clinton administration CRA regulations also "instructed bank examiners to take into account how well banks responded to complaints." Community advocacy groups can postpone or stop federal agency approval by filing petitions with regulators. To avoid interference from these community organizations, banks often reach formal agreements with them.

By intervening—even just threatening to intervene—in the CRA review process, left-wing nonprofit groups have been able to gain control over eye-popping pools of bank capital, which they in turn parcel out to individual low-income mortgage seekers. A radical group called ACORN Housing has a $760 million commitment from the Bank of New York; the Boston-based Neighborhood Assistance Corporation of America has a $3-billion agreement with the Bank of America; a coalition of groups headed by New Jersey Citizen Action has a five-year, $13-billion agreement with First Union Corporation. Similar deals operate in almost every major U.S. city. Observes Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, which has $220 million in bank mortgage money to parcel out, "CRA is the backbone of everything we do."

As Husock points out, these community groups are left-wing organizations. ACORN, for example, is a left-wing voter registration group with a history of election fraud. A young lawyer by the name of Barack Obama once worked for ACORN, which is a part of what he is referring to when he refers to his days as a "community organizer."

As a lawyer, Obama once represented a client in a lawsuit against Citibank for denying mortgages to African-Americans and others from minority neighborhoods. In other words, Barack Obama was directly involved in creating the current banking mess that just last week he called "a final verdict on eight years of failed economic policies promoted by George Bush, supported by Senator McCain..."

The really sad part of all of this is that with the help of the media, Obama and the Democrats have been able to convince Americans that George Bush, John McCain, deregulation, and the free-market system are to blame for the current economic crisis; when the reality is that over-regulation in the form of the CRA, and activists such as Barack Obama, working in left-wing advocacy groups such as ACORN, who believe that everyone should have everything handed to them - in this case a mortgage that they can't afford - actually bear the primarily responsible for the mess we're in.

Can we get the truth out?

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