Taking calls on Washington Journal this morning, Congressman Bill Posey (R-FL15) attempted to argue that too much regulation caused the current economic crisis. He cited the Community Reinvestment Act as an example, and agreed with a caller’s claim that the Act forced lenders to make $200,ooo loans to people making $30,000 a year.*
This Business Week article points out the silliness of this notion:
“…most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: ‘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.’”
So besides the nonsense of blaming a 1977 law for a 2008 crisis, it was in fact government failure to supervise subprime lending that contributed to the problem, not an Act intended to force banks to lend back to members of the community the deposits they took in from the customers who lived there.
Republicans know they can get attention by saying stupid things–this is the foundation of Rush Limbaugh’s success. But if they want to win back the confidence of Americans, they need to find talking points with some basis in reality. Blaming this crisis on goverment regulation and poor people who could not repay loans won’t help solve the problem because this didn’t cause it: unregulated investment bankers who packaged these loans into new forms of gambling instruments that could not be accurately valued did.
*Video avaliable here. Mr. Posey is first up.