Bad loans were not a requirement
January 10, 2012 · Updated 1:37 PM
In his rebuttal to my letter concerning the loss of Washington State Parks personnel, Mr. Hickey accused me of not being factual. His main premise was that it was the 1977 Community Reinvestment Act, meant to stop discriminatory redlining lending practices, which forced lenders to make millions of bad loans, an assertion that is itself grossly factually false. I can only guess that Mr. Hickey spends far too much time listening to FOX News, which is not news at all but extremist right wing propaganda.
First, the law made it clear in Sections 802(b) and 804(1) that any actions by the lending institutions to achieve compliance with the act should be “consistent with the safe and sound operation of such institution.” The law emphasizes that an institution’s CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution.
Second, the majority of the subprime loans were made by independent lending institutions not regulated by the Community Reinvestment Act, which says the regulation didn’t go far enough but left a gaping hole which irresponsible institutions exploited (not unlike the hole left by the Republicans leaving derivatives unregulated). The worst and most widespread abuses occurred in the institutions with the least federal oversight.
Another lie we need to thoroughly debunk is that regulation is bad for jobs. The millions of jobs lost in this financial crisis were due to insufficient or poorly-enforced regulation, not too much regulation.