2000 WARNING TO FINANCIAL MELTDOWN: "Trillion-Dollar Bank Shakedown That Bodes Ill for Cities"

SIT DOWN. Read this article from 2000 by Howard Husock. Understand your world then forward to McCain. The leftards policy once again an abject failure. It was NEED, NOT GREED. And the road to hell is paved with good intention.

Howard Husock
The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities (Aussie News and Views)

The Community Reinvestment Act funnels billions to left-wing activists, while threatening to destabilize lower-middle-class neighborhoods.
Winter 2000

The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.

The CRA's premise sounds unassailable: helping the poor buy and keep homes will stabilize and rebuild city neighborhoods. As enforced today, though, the law portends just the opposite, threatening to undermine the efforts of the upwardly mobile poor by saddling them with neighbors more than usually likely to depress property values by not maintaining their homes adequately or by losing them to foreclosure. The CRA's logic also helps to ensure that inner-city neighborhoods stay poor by discouraging the kinds of investment that might make them better off.

The Act, which Jimmy Carter signed in 1977, grew out of the complaint that urban banks were "redlining" inner-city neighborhoods, refusing to lend to their residents while using their deposits to finance suburban expansion. CRA decreed that banks have "an affirmative obligation" to meet the credit needs of the communities in which they are chartered, and that federal banking regulators should assess how well they do that when considering their requests to merge or to open branches. Implicit in the bill's rationale was a belief that CRA was needed to counter racial discrimination in lending, an assumption that later seemed to gain support from a widely publicized 1990 Federal Reserve Bank of Boston finding that blacks and Hispanics suffered higher mortgage-denial rates than whites, even at similar income levels.

In addition, the Act's backers claimed, CRA would be profitable for banks. They just needed a push from the law to learn how to identify profitable inner-city lending opportunities. Going one step further, the Treasury Department recently asserted that banks that do figure out ways to reach inner-city borrowers might not be able to stop competitors from using similar methods—and therefore would not undertake such marketing in the first place without a push from Washington.

None of these justifications holds up, however, because of the changes that reshaped America's banking industry in the 1990s. Banking in the 1970s, when CRA was passed, was a highly regulated industry in which small, local savings banks, rather than commercial banks, provided most home mortgages. Regulation prohibited savings banks from branching across state lines and sometimes even limited branching within states, inhibiting competition, the most powerful defense against discrimination. With such regulatory protection, savings banks could make a comfortable profit without doing the hard work of finding out which inner-city neighborhoods and borrowers were good risks and which were not. Savings banks also had reason to worry that if they charged inner-city borrowers a higher rate of interest to balance the additional risk of such lending, they might jeopardize the protection from competition they enjoyed. Thanks to these artificially created conditions, some redlining of creditworthy borrowers doubtless occurred.

Read it all.

Comments

[RedDawn]

Matt Lewis, a contributing writer for the conservative Web site Townhall.com, told CNN the plan only further riles conservatives upset with McCain's backing of the massive government bailout plan passed last week.

"Fundamentally, the problem is John McCain accepts a lot of liberal notions, unfortunately. There is somewhat of a populist streak," he said. "Most conservatives really did not like the bailout to begin with, and this was really kind of picking at the scab."

It's not just the plan conservatives are unhappy with, but how it was first unveiled as well -- out of the blue at Tuesday's town-hall debate during which Republicans were instead hoping McCain would present a spirited attack on what they view as Obama's overly liberal positions.

"Here we are watching the debate hoping this is a good format for John McCain to excel at, and the first thing he does is spring this on us," Lewis said. "This is not a good way to win friends and influence people."

[RedDawn]

McCain economic adviser Douglas Holtz-Eakin said on a conference call Wednesday that the McCain plan could start quickly because the authority was granted by last week's passage of the $700 billion economic bailout bill. The plan could also fall under the umbrella of the Hope for Homeowners program authorized by the housing rescue bill passed in July and the government takeover of mortgage giants Fannie Mae and Freddie Mac.

But the plan, which the McCain campaign appeared to be finalizing even after the candidate announced it, significantly departs from the Arizona senator's original proposal and has left many conservatives scratching their heads:

"The original plan relied on lenders taking the hit," Holtz-Eakin said on the conference call. "This bypasses that step."

Instead, the estimated $300 billion tab essentially gets transferred to taxpayers, among the funding already provided by the bailout bill -- a proposal that may rile not only fiscal conservatives, but also struggling homeowners who have worked to keep up their mortgage payments.

"The guy who works two jobs and struggles to actually pay his mortgage is penalized. He would be better off under this plan to just quit paying his mortgage," Lewis said. "And this fundamentally goes against a lot of conservative principles and individual responsibility."

[MGB]

http://www.larouchepac.com/news/2008/08/26/worlds-biggest-dope-bank-funded-acorn-obamas-campaign-appara.html

Hong Kong banks, too.