BK>>  Well... no. This credit crunch arose from the wealthy getting
 BK>>  regulations taken off their wealth redistribution schemes. From
 BK>>  the working people to them.

 JM> Read the following and explain to me how The Community
 JM> Reinvestment Act of '77 under Carter, and the The Community
 JM> Reinvestment Act of 1995, didn't have something to do with
 JM> the current problem.

 The CRA of '77 was to stop redlining.

 ...

 JM> The Community Reinvestment Act of 1995, which was a
 JM> revision of a similar law enacted in 1977, was a Clinton
 JM> era law that purported to increase the availability of
 JM> loans to low income business owners and home buyers. What

 I have heard a lot about this from all sorts of bloggers and
 pundits. What I haven't seen is one single article by anyone
 haveing any identifiable expertise in the subject.

 Now I also notice one important factor. You call this a Clinton
 Era law, but you somehow fail to point out that 1995 was the
 year the republicans took over congress. All of it.

 ...

 JM> The problem was that many of these borrowers did not have
 JM> sufficient income or assets to qualify for a loan Hence the
 JM> subprime mortgage was born, offered to borrowers without
 JM> the kind of credit history or assets to qualify for a more

 I was just reading up on that. Subprime mortgages were mainly
 the province of independent mortgage brokerages, and they were
 not covered by the CRA of either year.

 JM> traditional loan. Various stratagems were employed to
 JM> offset some of the risk of loaning money to bad risk
 JM> borrowers, including charging a higher interest rate.

 Not really. The higher interest rate was charged because they
 could get away with it. Many minority borrowers were sold
 subprime loans even though they qualified for a regular loan,
 simply because there was more money to be made.

 JM> This practice, encouraged by the government through the
 JM> Community Reinvestment Act and related regulations, seems
 JM> to have led to the house of cards that has led to the
 JM> necessity for a seven hundred billion dollar bailout of
 JM> financial institutions.

 No, actually it doesn't. The CRA did not require or allow
 lending to those who could not repay. It was the non-bank
 mortgage brokers and dishonest businesses that led to the
 meltdown. Notice the big banks that are going under are
 investment banks, not mortgage/deposit banks. There was zero
 requirement for those banks to do subprime loans.

 JM> While the banks and other lending
 JM> institutions must share some of the blame for engaging in
 JM> risky lending practices, these were done in an atmosphere
 JM> in which political coercion trumped sound financial
 JM> practice.

 No, it was done in an atmosphere where cooked books and big CEO
 bonuses trumped sound financial practice.

 JM> Unfortunately the credit crunch that was caused, at least
 JM> in part, by the Community Reinvestment Act was sparked

 Not even close.

 JM> calls for more not less regulation. While the bailout is

 Actually, that is not unfortunate. The repeal of regulation
 throughout the economy has proven disasterous time after time.
 Those regulations were put in place because business proved
 itself either incapable, or unwilling, to restrain bad
 practices.

 JM> probably necessary to save the United States from economic
 JM> collapse, it will not address the real problem that led to
 JM> the credit crunch in the first place.

 This part makes no sense at all. The removal of regulation was
 the real problem.


BOB KLAHN bob.klahn{at}sev.org   http://home.toltbbs.com/bobklahn

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