An article I read today, by Emma Coleman Jordan (who just happens to be black), attempts to debunk the idea that “Wall Street is melting down because the government forced banks to make loans to poor people — especially poor minorities.” Specifically, she says the Community Reinvestment Act (“CRA”) had nothing to do with it. Here’s her opinion of this idea:
“The fake story line reintroduces the trope of the irresponsible welfare queen who was given a house but who was so stupid and ungrateful as to lose it all in an entrepreneurial misadventure. The argument then descends into standard racial farce.”
“No need to dance around it: The story line is a complete lie.”
However, two paragraphs later:
“By and large, the problem with subprime lending was that independent, unregulated brokers pushed inappropriate loans to poor borrowers and to many American middle-class and wealthy consumers”
Summarizing, if we take poor minorities, who didn’t cause the crisis, out of the pool of poor borrowers who did, we’re left with…poor white people! A black person is blaming white people! Isn’t that racist?
Except that there’s data on this.
This article from the New York Times says:
“Last year (2006), blacks were 2.3 times more likely, and Hispanics twice as likely, to get high-cost loans as whites after adjusting for loan amounts and the income of the borrowers, according to an analysis of loans reported under the federal Home Mortgage Disclosure Act.”
“a recent Federal Reserve study noted that neighborhoods where people tend to have lower credit scores also tend to a greater concentration of high-cost loans.”
Clearly, minorities are the larger recipient of these loans. But, I will agree it’s not their fault.
According to the same article:
“It may be that these borrowers do not have access to traditional banks, because there are no branches near them. The Community Reinvestment Act, enacted 30 years ago, was intended to address redlining by forcing banks to make loans in lower-income areas. But the law’s provisions do not apply to banks in neighborhoods where they have no branches.”
In other words, if a bank doesn’t have a branch in a lower-income neighborhood, it won’t have to loan money to people in that neighborhood. What’s the effect of this?
“Banks typically locate branches where they believe they will get the most deposits. A lower savings rate and a distrust of banks stemming from a legacy of redlining may help explain why there are fewer branches in minority neighborhoods, Mr. DelliBovi said.”
Let’s summarize. The CRA says if you have a branch in a low-income neighborhood, you have to loan more money to low-income people. Banks that are responsible and don’t want to loan money to people not likely to pay it back, therefore, don’t locate there so they won’t have to make bad loans. Which means the only access to loans these people have is irresponsible banks who make high-cost loans.
In effect, the CRA guaranteed that minorities would only have access to subprime loans.
Who can minorities thank for this? The kings and queens of unintended (read: not thought-out) consequences. The Democrats and their king, Jimmy Carter. Who won a Nobel Peace prize.
Why is it minorities don’t hate the Democrats? Seriously.