I am writing in response to the article "How to Cure the Economy" on Oct. 10. The Community Reinvestment Act is a scapegoat in this whole fiasco. It does encourage banks to make a minimum amount of mortgage loans to low-income individuals, that's true. As soon as these were converted to mortgage-backed securities, though, they no longer counted toward that quota. As a result, banks were encouraged to hold on to the loans they made. As we all know, however, banks opted for more money by issuing many more loans than they needed to, and selling these off, and that's what got us into trouble.
Trying to blame the CRA for this crisis is like trying to blame the $1/gallon gas price floor for gas being so expensive. Further, there is evidence that mortgage companies not covered by the CRA made high-priced loans at over twice the rate of banks that were a part of it. A Federal Reserve survey showed that 50 percent of subprime loans were made by companies outside of the CRA's scope. 25-30 percent came from banks only partially regulated by the CRA, leaving only 20-25 percent of the subprime loans being made by those fully regulated by the Act. To claim that this whole thing is the result of government interference is ridiculous. Pure capitalism is just as inclined toward financial disaster as any other economic system. In reality, this crisis was the result of (among other things) deregulation, pure and simple.
We left the house alone with our teenage son with the strict instructions, "No parties," only to arrive back with our home ransacked, our son with a lampshade over his head and (miraculously) a donkey in the bathroom. You're absolutely right we're going to set some new rules, and make sure he's never left unattended again. By the way, in the metaphor above, the son is the financial services industry.
John Kinney
senior
Dillon Hall
Oct. 13
