Every time I hear President Obama say “We don’t want to go back to the same failed policies that got us into this mess,” I wish some competent reporter would ask him to name one. Name one thing the Bush administration did that caused banks to make ridiculous loans to lousy borrowers, then tell the investment community to treat those mortgages as though they were “no-risk” investments.
Reporters don’t ask those questions because b) most of the are too dumb to understand the issue, or b) they’re smart enough to know President Obama has no answer.
In the academic world, mealy-mouthed delivery of even powerful conclusions is the norm, so it’s refreshing to see authors Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru answer the title’s question, "Did the Community Reinvestment Act (CRA) Lead to Risky Lending?," with the clear, "Yes, it did. … We find that adherence to the act led to riskier lending by banks."
In “That’s No Angry Mob, That’s My Mom,” I wrote about a small, New England bank that, at the end of 2008—when the banking crisis was in full force—had no loans in foreclosure or at risk of going into foreclosure. But what DID the bank have?
A letter saying they weren’t meeting their CRA requirements for making higher-risk “community” loans.
It was the federal government that created the bubble and guaranteed the money used by the high-flying risk takers. I have no problem letting those risk takers go under—that’s what’s supposed to happen. But I have a major problem with the decision by the political class to let Washington off the hook.
Blaming Bush is easy. For liberals, it’s the answer to every question that involves math.