Under the golden parachute, a place for community reinvestment
As it crafts the mother of all bailouts, Congress is wrestling with the question of whether, and to what extent, ordinary people should be included in the rescue effort. As critics try to parse the layers of responsibility that led to the mess, some are wagging fingers at a long-standing federal law to promote financial and social equity.
The Wall Street Journal, Investor’s Business Daily, and others have linked the crisis to the Community Reinvestment Act, Carter-era legislation that encourages banks to boost equity in lower-income communities that lack access to financial resources. Critics say the CRA set up a dangerous spiral of unaffordable and unsustainable lending.
But as a form of regulation, the CRA, far from instigating the current crisis, seems to have promoted relatively stable wealth building, while helping underserved communities counter discrimination in financial services. Supporters point out that while it did establish a regulatory framework for lenders, the law tended to benefit both clients and the bottom line.
Earlier this year, Ellen Seidman of the New America Foundation’s Financial Services and Education Project testified to Congress that on the whole, the CRA has encouraged banks to be more proactive and innovative about doing business with underserved communities, and that “Once these initiatives were started, many have proven to be sustainable in purely financial terms.”
As Robert Gordon pointed out in the American Prospect, the CRA has been gutted under the Bush administration, and many of the lenders that dished out bad loans fell outside the regulatory scope of the CRA (which makes a case in favor of regulation, rather than against it).
“CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did."
Some of the most vocal criticisms of exploitative lending have come from advocacy and service-provider organizations that champion the CRA. The National Community Reinvestment Coalition, for instance, has lambasted discriminatory lending patterns and pushed for tighter regulations long before the current chaos erupted.
Yet despite the CRA's accomplishments, the devastation of low-income families and communities of color in the mortgage crisis reveals the stubbornness of entrenched inequities. Here on Long Island, for example, low- and moderate-income blacks were hit with high-cost loans about twice the rate of their white counterparts.
If the public is getting saddled with a bill for $700 billion worth of someone else's bad decisions, people are understandably hunting for targets to blame. But in contrast to the blind profit motives that plunged Wall Street into a hole, the 30-year history of the Community Reinvestment Act shows it has managed to keep many of the neighborhoods already at the bottom from falling further.
