Maggie's Farm

Yes. I'm far from an expert, but it seems to me that there are, indeed, at least two parts to this mess. The CRA forced banks to stop red-lining, but the problem extends well beyond that. The old fashioned banks are not going under in the current mess.

The failures are related to secondary lenders like Countrywide who backed their mortgages with securities rather deposits. The mortgage holders and the backers of those mortgages are going under. It looks to me like a toxic combination of the CRA mandate and deregulation permitting backing with securities that led to the collapse. In other words, liberal regulators and conservative deregulators alike had their stakes in this.

When we look at the actions of the failed secondary lenders, it's also clear that backing with securities enticed them to go well beyond the CRA mandate to include a percentage of poor neighborhoods and sub-prime loans in their loan portfolios. Instead, they specialized in sub-prime loans across the board and they didn't need bank deposits to back them at all. Congress did not force them to do that, but backing with securities made it possible to lend with deregulated impunity. They aggressively sought to lend at sub-prime rates to anyone who showed up at their doors--higher income, lower income--you name it. And they aggressively encouraged people with home equity to mortgage themselves to the hilt and to use their homes as collateral for other purchases.

There was a great deal of money made on those risky loans that went well beyond loaning to poor people without assets. If I was a cynical person, I might argue that the CRA was a ruse to deregulate the loan industry and entice Americans to transfer the value of real assets to investment bankers.

But I don't believe their was a conspiracy. Just lots of people acting in what they believed was in their own interests. Nor do I believe that guilty liberals, greedy investment bankers, mortgage brokers, poor people or only one branch of government is responsible. Many, many Americans of different political persuasions and circumstances played their parts, large and small.