The anti-redlining law that fed the housing bubble

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  • John C. C. Payson, UT
    Jan. 4, 2013 10:40 p.m.

    Conservatives in Congress, especially those from Utah, like Senators Garn, Bennett, and Hatch, have long claimed we need to deregulate banking. The Garn-St. Germain act in 1982 let savings and loan institutions off the regulatory leash until their massive failures forced a government bail-out. Yet they continued. More deregulation and more risky investments. More bailouts. It's time to hold white-collar criminals liable for their billions of ill-gotten gains. A street-corner mugger can be sent to jail for taking $50 from an old lady, but an investment banker who takes her for $50,000 gets a bonus and a golden parachute if caught and fired.

  • Screwdriver Casa Grande, AZ
    Jan. 4, 2013 2:29 p.m.

    So the conclusion is that banks need to discriminate based on where you live (redlining) rather than your ability to pay back the loan. Not that bright.

    The are many bankers that say it was derivatives that caused the bubble and collapse. I believe the bankers when they call themselves out. Alan Greenspan even said it was derivatives.

  • Twin Lights Louisville, KY
    Jan. 3, 2013 8:55 p.m.

    Eric Samuelsen,

    Thank you. You and I do not always agree 100%, but I think we share a mutual affection for reason and facts.

    The problem I see in so many discussions of economic issues (and manifested in this editorial) is an adherence to talking head talking points (which are usually shouted rather than spoken) and a resistance to considering wider viewpoints that could indict our favored views.

    Generally, I find that simple, sole source explanations fail. The quote from H. L. Mencken is usually operative "There is always a well-known solution to every human problem - neat, plausible, and wrong."

    So, when knotty problems are presented to have a simplistic genesis (and hence, a simple solution), the explanation immediately seems suspect to me.

    Sometimes I despair a bit Eric. Few folks on these threads are really discussing anything. They are just parroting the same stuff over and over without really considering the issues. I appreciate your ability to have a real discussion.

    Best Regards,

  • Eric Samuelsen Provo, UT
    Jan. 3, 2013 4:51 p.m.

    As usual, Twin Lights brings sense and good evidence to the discussion. To blame the world-wide financial crisis on anti-redlining legislation is akin to ascribing the death of a whale to one single diseased fluke.

  • RedShirt USS Enterprise, UT
    Jan. 3, 2013 12:47 p.m.

    To "LDS Liberal" not supprising that you are using your neocon logic (neocons are liberals who like the military, that is a fact).

    The lesson we can learn here is that the banks followed the regulations, and the regulations caused the problem. We need to get rid of the regulations and make it like it was in the early 1930's when banks were responsible for their own loans. Prior to government regulations few loans were sub-prime. Now, thanks to regulation, a lot of loans are sub-prime.

    Your ilk would have us add regulation on top of regulation. Much like adding gasoline to a fire in an effort to control the fire.

  • JoeBlow Far East USA, SC
    Jan. 3, 2013 10:58 a.m.


    YOu may be factually correct, but people would rather be able to demonize the other side, than figure out exactly what caused the problem.

    That is why we make the same mistakes over and over.

    Does anyone really think that we will not have another bank meltdown based on greed?

    Even after Barney is gone.

  • LDS Liberal Farmington, UT
    Jan. 3, 2013 10:10 a.m.

    Using simple Neo-Con mis-logic --
    I'm blaming GW Bush for it.

    His watch, His problem.

  • Roland Kayser Cottonwood Heights, UT
    Jan. 3, 2013 9:29 a.m.

    Fannie and Freddie were very late getting into the sub-prime game. They got into it because they saw how much money Wall St. was making on sub-prime and didn't want to lose out.

    Also, many people seem to have forgotten the reason for the CRA. For a very long period in our history, banks simply refused to lend money to anyone who lived in the "black" part of town. CRA never created any requirement that banks lend to people with bad credit, merely that they couldn't deny credit based on where people lived.

  • lost in DC West Jordan, UT
    Jan. 3, 2013 8:43 a.m.

    Since CRA has been around since the mid 1970s and the housing bubble did not commence until around 2004-2006, (Countrywide was not a depository institution, so they were not subject to CRA), it was not CRA that created the problem.

    The author does point to the culprit, congress - particularly barney frank, forcing fannie and Freddie to buy bad debt. Countrywide made money for every loan it produced and sold to fannie and Freddie, so CW had no incentive to make good loans (they kept none of the risk). The same was true for every mortgage firm, whether it was owned by a bank or not. Make a loan to the lower standards forced on fannie and Freddie, sell the loan to fannie or Freddie, pocket a few grand in fees, and move on to the next non-credit-worthy borrower and do the same. More people qualify for loans, more get into the housing market than can really afford to, push the market out of whack, and a bubble results.

  • Twin Lights Louisville, KY
    Jan. 3, 2013 8:10 a.m.

    From the study:

    We find that adherence to the act leads to riskier lending by banks: in the six quarters surrounding the CRA exams, lending is elevated on average by about 5 percent and these loans default about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.

    Not enough to explain the problem. First, the effects talked about do not make up the real problem. Second, because the mass foreclosure problem has been taking place in many neighborhoods that were NEVER CRA areas. Third, because banks are by far not the only originators of mortgages.

    Did CRA increase the problem within those tracts? Apparently, yes. Does that explain the absolute mess we were in? No. For that, you need a long list of players.

    BTW, I was a banker back in the 1980s and we worked with CRA. Never a problem.

  • Screwdriver Casa Grande, AZ
    Jan. 3, 2013 3:51 a.m.

    never mind that the CRA was passed in 1977 and didn't cause any bubble until the banks were deregulated and allowed to gamble. In some cases they were leverages 10000 times on mortgages.

    You realize that redlining was simply denying someone credit because of WHERE they lived and not thier ability to pay the loan back right? Does that sound like a good wholsome american practice?