“Democrats forced banks to make bad loans so that even people who couldn’t afford a house could own one.”
Right wingers have been saying this since soon after the financial collapse of 2008. They have to make this argument, because otherwise responsibility for the sub-prime mortgage crisis falls primarily on President Bush and/or the free market.
It’s a total lie.
Conservatives point to the Community Reinvestment Act as the law forcing banks to make bad loans. What does the CRA actually do?
Sandra Braunstein, Director of the Division of Consumer and Community Affairs describes it thus to Congress:
Enacted in 1977, the CRA states that federally insured banks and thrifts have an obligation to help meet the credit needs of the communities in which they are chartered, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The act also directs the federal bank and thrift regulatory agencies, including the Federal Reserve, to implement the CRA through regulations, and to examine banks and thrifts to determine whether they meet their CRA obligations.
Key phrase: “consistent with safe and sound operations.” Lawmakers were not concerned with making loans available to everyone, whether they could afford them or not– they were concerned with the process known as “redlining.”
Redlining describes the process by which banks literally draw a red line on a map through certain low-income neighborhoods and refuse to conduct operations there. As recently as 2004, the Department of Justice charged Chicago lender First American with redlining.
The key is that banning redlining did NOT and does NOT require banks to loan money to everyone who wants it– it just means that banks can not discriminate based on race or other factors. In other words, if a bank wants to loan money to poor white families, they have to loan money to poor African-American families. Through the CRA, banks are required to make decisions based on financial considerations (income, credit history, net worth) alone, not based on race, ethnicity, or what neighborhood you live in.
During the presidential election last year, conservatives pointed to this case as “evidence” that Barack Obama was partially responsible for the subprime collapse:
Case Name
Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance
Docket / Court 94 C 4094 ( N.D. Ill. ) FH-IL-0011
State/Territory Illinois
Case Summary
Plaintiffs filed their class action lawsuit on July 6, 1994, alleging that Citibank had engaged in redlining practices in the Chicago metropolitan area in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691; the Fair Housing Act, 42 U.S.C. 3601-3619; the Thirteenth Amendment to the U.S. Constitution; and 42 U.S.C. 1981, 1982. Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages.U.S. District Court Judge Ruben Castillo certified the Plaintiffs’ suit as a class action on June 30, 1995. Buycks-Roberson v. Citibank Fed. Sav. Bank, 162 F.R.D. 322 (N.D. Ill. 1995). Also on June 30, Judge Castillo granted Plaintiffs’ motion to compel discovery of a sample of Defendant-bank’s loan application files. Buycks-Roberson v. Citibank Fed. Sav. Bank, 162 F.R.D. 338 (N.D. Ill. 1995).
The parties voluntarily dismissed the case on May 12, 1998, pursuant to a settlement agreement.
Plaintiff’s Lawyers Alexis, Hilary I. (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000
Childers, Michael Allen (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000
Clayton, Fay (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000
Cummings, Jeffrey Irvine (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000
Love, Sara Norris (Virginia)
FH-IL-0011-9000
Miner, Judson Hirsch (Illinois)
FH-IL-0011-7500 | FH-IL-0011-9000
Obama, Barack H. (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000
Wickert, John Henry (Illinois)
FH-IL-0011-9000
Unbelievably, they somehow missed the point of the case. The case summary states “Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories.” Could it be any simpler?
Obama and his colleagues were NOT demanding that everyone receive loans. They were demanding that race not be a factor.
This talking point needs to be thrown out the window. Banks did not make subprime loans because they had to. They made bad loans because they could package them up (into mortgage backed securities) and sell them. They didn’t CARE whether people paid them back or not. These MBS’s worked their way across the globe, crippling many financial institutions when the payments stopped rolling in.
Conservatives, face reality: the free market is NOT perfect. It’s the best economic system known to man, but guess what– people are selfish. The market needs to be regulated. Admitting as much does not make you a socialist, it makes you a realist.
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