Shadow Economy Shills Are Still Clouding the Waters

Incredibly, the class war rages on. I say “incredibly” because even in the glare of the disaster unleashed on each and every one of us by fatally under-regulated financial markets, the propaganda of the moneyed class continues. Whether from a desire to preserve ill-gotten riches, avoid prosecution, or simply to save face, the perpetrators of the hog-wild deregulation that’s wrecked the world economy have designated a new scapegoat, designed to hoodwink us into thinking it was all the fault of “the liberals” for thinking regular citizens deserve a fair shake in securing housing loans.

Flowing from behind the once-invincible walls of so-called “free market” think tanks like the Heritage Foundation and the Manhattan Institute, a cascade of opinion articles, internet blogs, and right wing television bluster has appeared, blaming the Community Reinvestment Act as the preeminent cause of the current plague of housing foreclosures.

Passed by Congress in 1977 the CRA, as it is commonly known, has for over 30 years addressed the discriminatory practice of “redlining,” in which lending institutions refused loans or offered only inferior terms to people living in racially-segregated or low- and moderate-income neighborhoods. On some early maps used by banks, these neighborhoods were actually defined with red lines, hence the term.
The Community Reinvestment Act has long been a whipping boy of those who claim government involvement in our economy is always unwarranted, no matter how much harm is inflicted upon society on the road to concentrated profits.

Before his death last year, Paul M. Weyrich, founder of the Heritage Foundation and a “father of modern conservatism” wrote: “The act forced banks to make loans to people who had little or no ability to liquidate them. This created the subprime market which in turn created a fragile economic housing “bubble.” When that bubble burst, as all bubbles do, it left us with a terrible economic and housing crisis.”

Where to start? First, the CRA does not “force” banks to make loans to anybody. Rather, each bank (or savings association) is examined by a federal regulatory agency to make sure it extends loans to all qualified applicants living in its area. In specific terms the CRA declares these loans are to be “consistent with the safe and sound operation of such institutions.” Under terms of the legislation this information is taken into consideration when the parent company applies to expand or to merge with another company. What really rankles the proponents of “bigger is better” is the requirement to serve the little people on their way to fantastic profits via corporate consolidation.
Second, there is no reliable evidence that people taking out loans under terms of the CRA have “little or no ability to liquidate them.” In fact, the thirty-year track record indicates otherwise. According to San Francisco Federal Reserve Board Governor Randall Kroszner, “We have not yet seen empirical evidence to support these claims, nor has it been our experience in implementing the law over the past 30 years that the CRA has contributed to the erosion of safe and sound lending practices.” What’s more, Federal Reserve Board Chair Ben Bernanke contends "the CRA has served as a catalyst, inducing banks to enter underserved markets that they might otherwise have ignored".

Sheila Bair, Federal Deposit Insurance Corporation Chair (and a Republican), put the finishing touches on Weyrich & Co’s charges in a speech last week: “Only about one-in-four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending (2004-2006). The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.”

Ms. Bair’s last sentence brings us to the awful truth. Amidst a post-New Deal ideology of financial irresponsibility spread far and wide by “free market” hucksters, lawmakers were bought, regulators looked the other way, and too many of us believed that something comes from nothing. A shadow economy built on debt – the under-regulated “financial services industry” – replaced manufacturing’s share of the U.S. economy. Now, even as their failed version of an economy is obvious to all, the snake oil salesmen can only keep spinning. As Nobel prize-winning economist Paul Krugman says, “The attempt to blame it all on the CRA is just an attempt at blame-shifting -- an attempt to make liberals and nonwhite people the villains of a story that is actually about runaway financial institutions and the free-market ideologues who refused to regulate them.”

So-called conservatives have long used the term “class war” to denigrate anyone who questions the historic and rapidly expanding levels of wealth disparity in this country. We can help ourselves by remembering who started that war.

Dave Wheelock, a member of the Oneida Nation of Wisconsin, is a collegiate sports administrator and coach who lives and home-studies in Socorro, New Mexico. Reach him at davewheelock all one word, lower case) at yahoo.com. Mr. Wheelock's views do not necessarily represent those of Socorro News, but frequently do.

Copyright 2009, Dave Wheelock; all rights reserved. This article originally appeared in The Mountain Mail and is reprinted with permission.