Subprime Stoked By Deregulation and Bipartisan Greed,
not CRA, Community Reinvestment Act
Byline: Matthew R. Lee of Inner
City Press in the South Bronx: News
September 28 -- First on the fringes
and now on Fox News, the Community Reinvestment Act is being blamed by
today's financial crisis. The argument is that by encouraging
banks to lend in lower income neighborhoods, the government -- read,
from Jimmy Carter to Bill Clinton -- created the explosion in high
rate subprime loans.
There's a major factual problem, though: with a single
exception, no bank sought CRA credit for its subprime loans. And the
banks which were purchasing, bundling and securitizing the loans were
covered by CRA. Bear
Stearns was not covered by CRA, but was bailed
out by the
Federal Reserve Board for $30 billion dollars. AIG, an
insurance company, was
not covered by CRA, but its subprime activities have led to a $75
from the Federal Reserve, whose chairman Ben Bernanke
nevertheless claimed to Inner City Press that the Fed does
not control AIG, despite owning warrants for 79% of its stock, click here for
community advocates had been telling the Federal Reserve about the
subprime lending since the 1990s. For
example, Bronx-based Fair Finance Watch commented to the Federal
the practices of now-defunct non-bank subprime lender New Century, when
Bancorp bought warrants for 24% of New Century's stock. The Fed, rather
take any action on New Century, merely waited until U.S. Bancorp sold
of the warrants, and then said the issue was moot.
when community groups from all over the country complained
to the Office of Thrift Supervision about the subprime practices of
Mutual's affiliate Long Beach Mortgage, the OTS responded that is was
concerned with WaMu's savings bank, not its finance company. WaMu never
credit for Long Beach's loans, but now WaMu has failed and been bought
sale prices by bottom-feeder JPMorgan Chase.
Prince of Citi, growth in subprime had nothing to do with CRA
goes on and on. Non-U.S. institutions that now stand to benefit from
bailout bill being quickly considered in Congress are not covered by
UBS of Switzerland, Nomura of Japan, even some sovereign wealth funds
and a lack of business ethics are major causes of the subprime
have been bipartisan. Republicans are more closely identified with
but it was Clinton who oversaw the breakdown of the wall between
commercial banking, for example. Several Clinton administration
to work or advocate for subprime lenders, defending their cashing-in as
support of the democratization (literally) of credit. While
Republican Phil Gramm went to work for
UBS as it got more and more into subprime, Democrat Robert Rubin went
for subprime-heavy Citigroup and did nothing to reform its practices.
notably that Citigroup has not yet showed up for bailout funds.
Citigroup's grown in
subprime had nothing to do with the CRA. Rather, insurer Travelers
Group, controlled by Sandy Weill and Chuck Prince (and Robert
Willumstad who would later drive AIG into the ground), which already
owned subprime lender Commercial Credit, bought Citicorp and then
subprime lender Associates. They renamed the operation CitiFinancial,
but never sought CRA credit for Citibank for its operations. And when
Inner City Press asked Chuck Prince of Ciitgroup's securitization of
loans by Ameriquest, Prince said that had nothing to do with the CRA.
more than enough blame to discredit both political parties. But it's
Community Reinvestment Act statute that's to blame. If anything, the
provided a venue by which many of the problems were raised, and some
solved. When Atlanta-based SunTrust, for example, applied to the
Reserve for approval of a merger in Memphis, Fair Finance Watch showed
that SunTrust was lending to a slew of predatory lenders. SunTrust
committed to get out of some of these fields, and had its application
That was CRA at work, in a way conveniently not mentioned in the sloppy
arguments being advanced.
Watch this site, and this (UN) debate.
* * *
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