Steven L. Taylor over at Outside the Beltway has a post up arguing that the Community Reinvestment Act, the law that ordered banks to make loans out to those who really couldn’t afford them, was not the reason for the housing bust, but rather greedy megabanks that were preying on naive homeowners. Mostly, he gets this from Barry Ritholtz. Here’s a summary of the arguments:
- The boom and bust was a global phenomenon, so the CRA couldn’t possibly have done all of this.
- What was done in the US mostly happened outside of CRA target zones, in the suburbs.
- “Nonbank mortgage underwriting exploded from 2001 to 2007, along with the private label securitization market, which eclipsed Fannie and Freddie during the boom.”
- Most of the lenders were private firms not subject to CRA regulations.
At any rate, the notion that the crisis in mortgage financing was caused by, as NYC Mayor Michael Bloomberg put it, “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp,” is patently absurd.