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Establishing the Role of theCommunity Reinvestment Act inthe Financial Crisis
Edward J. PintoNovember 18,2009Presentation at the CATO Institute
 
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President Obama absolves CRA
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The White House’s June 17, 2009 White Paper:Financial Regulatory Reform avers:“Some have attempted to blame the subprimemeltdown and financial crisis on the CRA and haveargued that the CRA must be weakened in order torestore financial stability. These claims andarguments are without any logical or evidentiarybasis. It is not tenable that the CRA could suddenlyhave caused an explosion in bad subprime loansmore than 25 years after its enactment.”
 
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Nobel Laureate Paul Krugman absolved CRA asrecently as November 2, 2009
“Zombies, zombies, everywhere. One of the enduring myths of thefinancial crisis has been the claim that it was the result of (a) Fannie andFreddie (b) the Community Reinvestment Act, which forced poor, helplessbankers to make loans to you-know-who.It’s a myth that won’t go away —I get asked about it almost every time I give a public lecture — eventhough it has been extensively debunked.” (New York Times, November 2,2009)He also assumed that Fannie Mae and Freddie Mac (the GSEs):“didn’t do any subprime lending, because they can’t: the definition of asubprime loan is precisely a loan that doesn’t meet the requirement,imposed by law, that Fannie and Freddie buy only mortgages issued toborrowers who made substantial down payments and carefullydocumented their income.” (New York Times, July 18, 2008)He could not have been more wrong about the GSEs – together they heldover $ 1.5 trillion of such loans and securities as of June 30, 2008.
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