Obama's Prescription For Our Recession - More Massive Fiscal Irresponsiblity, This Time Race Based

Obama is attacking everything about our capitalistic system - with the sole exception of the program at the center of the subprime meltdown - and thus our current recession - the Community Reinvestment Act (CRA). In 1993, we had colorblind lending standards. By 1994, that was all changed by the CRA. It degraded lending standards ostensibly under the rubric of racial fairness. In his latest massive attack on capitalism - the proposed massive expansion of regulations and government intervention into our financial sector unveiled two days ago (readers digest version here) - Obama is not merely protecting the racist contagion that is the CRA, he is putting it on steroids.

In Obama's 89 page “A New Foundation: Rebuilding Financial Supervision and Regulation,” the following appears as a duty under the newly proposed Consumer Financial Protection Agency:

A critical part of the CFPA’s mission should be to promote access to financial services, especially for households and communities that traditionally have had limited access. . . .

Rigorous application of the Community Reinvestment Act (CRA) should be a core function of the CFPA. . . .

The appropriate response to the [financial] crisis is . . . to promote robust application of the CRA so that low-income households and communities have access to responsible financial services that truly meet their needs. To that end, we propose that the CFPA should have sole authority to evaluate institutions under the CRA. While the prudential regulators should have the authority to decide applications for institutions to merge, the CFPA should be responsible for determining the institution’s record of meeting the lending, investment, and services needs of its community under the CRA, which would be part of the merger application.

The CFPA should also vigorously enforce fair lending laws to promote access to credit. Furthermore, the CFPA should maintain a fair lending unit with attorneys, compliance specialists, economists, and statisticians. The CFPA should have primary fair lending jurisdiction over federally supervised institutions and concurrent authority with the states over other institutions. Its comprehensive jurisdiction should enable it to develop a holistic, integrated approach to fair lending that targets resources to the areas of greatest risk for discrimination. . . .

The CRA imposed ridgid color-centric loan standards that caused in part, led in part to a lowering of lending standards throughout the nation. Loans under the CRA are not merely individually evaluated to see if there has been actual discrimination, they are looked at statistically by race. If there are not enough loans to inner city minorities in your portfolio, you used to get sued by Obama and ACORN. Now if Obama has his way, it will be the CFRA looking ever closer at our banks and lending institutions and penalizing based on statistics.

I've written thousands of words documenting the role of the CRA in causing our financial melt-down. None-the-less, according to Obama, it is only through race based lending that we can pull out of the financial crisis that such lending led us into. Indeed, at one point in the 89 page report, the authors defend the CRA, claiming that it played no role in our financial crisis:

Some have attempted to blame the subprime meltdown and financial crisis on the CRA and have argued that the CRA must be weakened in order to restore financial stability. These claims and arguments are without any logical or evidentiary basis. It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment. In fact, enforcement of CRA was weakened during the boom and the worst abuses were made by firms not covered by CRA. Moreover, the Federal Reserve has reported that only six percent of all the higher-priced loans were extended by the CRA-covered lenders to lower income borrowers or neighborhoods in the local areas that are the focus of CRA evaluations.

This is not merely pure fantasy, it is an utterly outragous - and dangerous - lie. For an in-depth discussion of the CRA and its impact on our economy, please see Hurricane Subprime, 1977-2000. Whatever else the conservatives and centrists do over the next three years, perhaps one of the most important will be to insure that Obama's CFPA never becomes law. Of equal importance is getting the CRA erased from the federal code.