My esteemed Keloland Colleague and friend, Cory Heidelberger, ribs me with this one:
That crashing sound you heard in the middle of the night was the good Professor Blanchard going off the rails again. He begins with a reasonable bemoaning of our economic peril and the absence of trust. He rightly cites as an example the greed of Bernard Madoff and the negligence of President Bush and his federal watchdogs.
But then Blanchard sails right past that real problem and decides to blame those darn minorities and their enablers in the Democratic Party and the liberal press for originating the subprime lending crisis.
Actually, I was aiming for some balance: blaming both Bush and the Democrats for our current troubles. Cory will have none of it. It's all the fault of that wicked Bush. Well, I can see the attraction of that view. Wouldn't it be simpler if all the troubles in the world were due to Bush, or The Joker, or some really bad guy?
Cory directs us to a post of his where he thinks he shows that the Community Reinvestment Act wasn't the cause of the subprime meltdown. Most of the subprime mortgage loans in 2006, he tells us, were made by private institutions. Well, that clears that up! In fact, the CRA is a red herring. As proof that conservatives were concerned with it, he produces an anonymous comment on his blog. No one, Cory, is worried about the CRA. But that has been clear in this exchange for some time.
I direct Cory to a previous post of mine in reply to his above mentioned post. Let me summarize the problem. The current economic crisis has its roots in bad home loans. Lots of people got loans that they couldn't pay back for houses they couldn't afford. The question is why?
Was it deregulation? To make that case, you would have to show that all the subprime loans that went south would have previously been illegal. Can Cory show that that is the case? I suspect not. So what was it?
The single most significant cause of the subprime crisis was the crisis at Fannie Mae and Freddie Mac. And here is a fact that Cory glides over. The Bush Administration noticed that the FM's were engaging in very risky business. Barney Frank and his Democratic colleagues stopped the Administration from doing anything about that. There is no doubt about this. Isn't it worth mentioning?
But the more important cause of the present crisis is the fact that, in the early 1990's, America's financial institutions relaxed their standards for borrowers. Why did that happen? Because a lot of newspaper editorial boards decided that not enough minority borrowers were getting home loans. In fact, the opposite was true. The default rate for minority borrowers was higher than that for non-minority borrowers, which decides the question. The standards were stricter for the latter than for the former.
But never mind the logic. Progress required that standards for minority borrowers be relaxed further so that more of them could buy houses. What actually happened was that standards were relaxed across the board. Thus were the greediest unscrupulous loan officer invited to go for it.
Nobody is blaming minority borrowers. Cory is trying to hide his tattered view behind a Black family. The blame lies with mostly with liberals in the Press and their conjoined twins in Congress. They engineered affirmative action for home loan applicants. The results are now upon us.
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