The CRA Didn’t Cause of the Crisis

Eric Falkenstein argues that the Community Reinvestment Act didn’t cause the financial crisis but the mindset driving it sure did:

The zeitgeist suggested that lowering underwriting criteria for homeowners was costless, turn renters with their various social and economic deficiencies into homeowners with their various social and economic proficiencies, and be morally just. The mindset that underlay the CRA, not the CRA itself, caused the housing crisis. The CRA was joined by the Fair Housing Act and other explicit legislation. The regulators from the OFHEO, OCC, FDIC, SEC, and Federal Reserve were all on board with the tactics consistent with the strategy, meaning that bankers weren’t criticized for lowering their standards in regards to home lending, but rather congratulated. The US Department of Housing and Urban Development, and Department of Justice had similar objectives and initiatives to those in the CRA. The CRA, in this context, was unnecessary.

That mindset hasn’t gone away. If anything, it’s now spread to education financing.

Posted by on August 17th, 2010 at 9:17 am


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