Stop blaming poor people

Blame for the subprime collapse that drives the current financial markets crisis should not be laid at the feet of the poor in America. Such knee jerk rhetoric is not only unfair, it just won't stand up under objective scrutiny. Simply put, this is not what happened.

I believe a recent essay that appeared on Slate.com is worth reading carefully.

One item of interest is the role of the Community Reinvestment Act. Here's a fact: CRA requirements apply almost exclusively to regulated, depository banks and not to the unregulated financial institutions that contributed most to the current meltdown. Interesting stuff.

Poor folks aren't to blame. We serve thousands here. Almost no one under 50 in my world owns a home.

Here's an excerpt from the Slate essay by Daniel Gross:

Look: There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb-lending virus originated in Greenwich, Conn., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington, D.C. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.

At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "De minimis."

Lending money to poor people doesn't make you poor. Lending money poorly to rich people does.

Read the entire article here.

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Important comment on CRA

Just to put it out "front and center," be sure and read the Op-Ed essay by Froma Harrop in today's edition of The Dallas Morning News regarding the Community Reinvestment Act and the current credit crisis.

For this sound analysis, go here. I love the facts of this matter.

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Don't go blaming CRA requirements. . .come on!

During the current financial markets meltdown, I've heard and read (even here) a few people try to pin our problems on the federal Community Reinvestment Act requirements that lending institutions invest in the health, renewal and redevelopment of the communities in which they do business and garner profits.

This claim is absurd.

On Tuesday, I was involved in a national conference call with a very large national bank's community development advisory board. During our conversation, I asked the bankers in charge if blaming the CRA obligations made any sense at all.

Of course, the banks would just as soon these requirements go away since that would mean more profits for their companies. And, you'll recall that Senator Phil Gramm (R-TX) tried to repeal all CRA requirements a few years back. You'll also recall that he's the economic advisor who recently characterized the concern ordinary Americans expressed about the state of our economy as "a nation of whiners" caught up in a "mental recession."

But, back to my phone conference.

The banker I asked summed things up this way, "As far as CRA requirements and the current crisis in the financial markets, anyone who claims that our problems are the result of the CRA rules just doesn't understand the crisis or the way those requirements are worked out in a community. Further, these rules have been around for decades (enacted in 1977) and they just aren't the problem."

Now this comes from a banker, mind you!

By the way, even Business Week gets this!

I followed up by asking where I might find hard data on the percentage of earnings required for reinvestment in a communities under the rules. I also asked where I might find the actual amounts spent to fulfill the regulations and to what sorts of projects they were directed.

I know from experience here in Dallas, that for most banks the numbers are not huge, nor are the outcomes overwhelmingly impressive in terms of community impact.

Blaming already grossly underfunded programs designed to extend a helping, equitable, non-biased, lifting hand to the poor simply doesn't line up with reality on the ground out here in the neighborhoods.

So, lay off the CRA rhetoric, would you?