Do Republicans Want Another Depression?
Judging by reader comments on The Dallas Morning News blogs, conservatives who blocked the federal bailout (or rescue, if you prefer) of the financial industry are sharpening their talking points.
The libertarians among them say government intervention is bad. Let the banks on Wall Street fail. Let the businesses on Main Street topple after them. Let the workers who depended on their company pension plans and 401Ks go down, too. Free markets are risky and failures are how markets cleanse themselves of mistakes. We are now just shy of 80 years distant from the stock market crash of 1929 and the onset of the Great Depression. People who have personal memory of the bank panics, the home foreclosures, the Hoovervilles and soup kitchens, are fast disappearing into history. A new crop of libertarians is ripe, ready to risk another Great Depression in the name of free markets.
Scapegoating the Financial Crisis
Other conservatives who aren't above using government to benefit their own interests are using the current crisis as an opening to attack an old bogeyman -- the poor. These people are pointing to the Community Reinvestment Act (CRA) as a root cause. According to this storyline, liberals in government wrote laws that forced lenders to make bad loans to people unlikely to be able to pay the money back. Jim Mitchell, in The Dallas Morning News Opinion blog, explains.
"Don't forget the reason CRA exists. It was a reaction to banks redlining minority and low-income neighborhoods. The law forced banks to show regulators that they attempted to provide loans and make other investment in low- and moderate-income communities."CRA forced banks, not to make bad loans, not to make risky loans, but not to discriminate based solely on the neighborhood one lives in. Banks didn't need anyone to force them to make predatory loans. There was plenty of greed in the mortgage banking industry to do that all by itself. Government's failing is not in passing CRA. Government's failing is in not preventing predatory lending practices. Too many people were getting rich. Too many other people are now left holding the bag.
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Aaron Pressman, in the BusinessWeek blog Investing, cites some facts about the CRA that ought to discredit attempts to blame CRA for the current fiscal crisis. CRA was passed in 1977, but the current housing/credit crisis didn't get out of hand until the last few years. Also, most subprime loans were made by firms that aren’t subject to the CRA. Most were made by firms not subject to comprehensive federal supervision. On the whole, CRA loans were made in a more responsible way. Finally, the Bush administration has been weakening CRA enforcement. Former Fed Governor Ned Gramlich said in an August, 2007, "In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat."
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