Repealing Anti-Discrimination Law

Bannon’s movie is right, the Community Reinvestment Act did contribute to the financial crisis—among other things By Robert Romano

Yet another piece from the mainstream media insinuating that Donald Trump’s chief strategist and senior counselor is a closet racist.

This time the hit comes from Politico’s Ben Schreckinger, writing, “Bannon’s film blamed racial-bias law for financial collapse.” The piece does not outright accuse Bannon of being a racist, of course, it quotes somebody else — that is, unnamed “top critics,” in Schreckinger’s words — saying he’s a “white nationalist.” Solid reporting there.

But let’s play along. Naturally, this must have led to his views on the causes of the financial crisis, and so he wrote and directed the 2010 documentary, “Generation Zero,” that chronicles many root cause of the 2007-09 financial crisis.  “The documentary argues that the subprime mortgage bubble that precipitated the crisis resulted in large part from rules in the Community Reinvestment Act against racial discrimination that led mortgage lenders to make loans to risky borrowers,” the Politico piece summarizes.

Except, the documentary gave air to a multitude of viewpoints on the financial crisis, including how when the Baby Boomers, the most spoiled generation in human history took over Washington, D.C. and Wall Street from the far more frugal Great Depression-World War II generation, and did not share those same values of risk aversion, it helped contribute to the financial crisis.

The documentary looks at factors like the Bear Stearns exception on leveraging by the Securities and Exchange Commission that helped Wall Street firms leverage borrowing upwards to as much as 40 to 1.

It looks at other factors like deindustrialization and offshoring jobs and production overseas, quoting Fox Business’ Lou Dobbs and economist Peter Morici.

It has former CNBC host Larry Kudlow talking about the Federal Reserve keeping interest rates too low for too long, fueling the credit bubble, laying the blame at the feet of former Federal Reserve Chairman Alan Greenspan.

It talks about the privatization of profits, the socialization of losses and moral hazard. It blasts bailing out Wall Street banks that made bad bets on mortgages, derivatives and other instruments.

And yes, it features Hoover Institution Research Fellow Peter Schweizer — Schreckinger apparently could not even be bothered in his “report” to figure out who the experts were whose views he was attributing solely to Bannon discussing the roles played on mortgage lending standards by the Community Reinvestment Act.

Schweizer stated, “$4.5 trillion has been committed by banks to the Community Reinvestment Act since 1977, but roughly $4.2 trillion of that has come in the last 10 years. This has fundamentally undermined the banking system in the United States.”

The documentary also covers how Fannie Mae and Freddie Mac drove the mortgage market in the 1990s and 2000s. Schreckinger uses a quote from the documentary, again not attributing it to the person actually in the documentary. In this case, he was actually quoting one-time top Bill Clinton advisor Dick Morris. Heard of him?

In the documentary, Morris states, “It was all like this Ponzi scheme: We have this program, Fannie Mae and Freddie Mac, which are buying and issuing mortgages. People believe the government stands behind their bonds. We need more of their resources to go to help low-income people and lower-middle-income people buy a house and live the American dream. So Fannie Mae went to the mortgage brokers around the country and said, you just make these loans, don’t ask for money down, don’t worry too much about their credit, we’ll buy the loans from you, and it’s our money that’s going to be at risk, no your money, and you go out and make loans.”

Schreckinger also runs a quote from Hoover Institution Senior Fellow, Shelby Steele or in Schreckinger’s words, “one narrator” whose name he couldn’t figure out: “This policy that led to the subprime crisis and so forth came out of the fact that the civil rights movement had claimed that blacks were being red-lined. Banks then didn’t want to lend money to them. Here is another source of black victimization. Here’s another place where this fundamentally racist society is keeping blacks down. Since the mid- sixties, white Americans have been in a position where they constantly have to prove that they are not racist. It is that phenomenon of white guilt is what pressures people in the government to say things like, ‘Everybody has a right to a house,’ and unfortunately capitalism doesn’t work that way.”

Steele, who was born to a black father and a white mother, has actually written a great deal about the concept of racial guilt and how it has helped shaped public policy, for example, in 2001, he wrote, “The Double Bind of Race and Guilt,” looking at affirmative action and other policies. Yeah, real “white nationalists,” there. Yes, I’m being sarcastic.

Now, one can disagree with these types of analysis in an honest discussion, but that is not Politico’s not-so-subtle aim. It is to cast these views into the same old lame narrative of “white nationalism,” which has nothing to do with the documentary or the financial crisis or Stephen Bannon, for that matter, but what the heck? Just throw it in there. It’s good copy. Millennials will just share and forward and not bother with facts, right? Who’s really pushing fake news, anyway? This might fit the bill.

In the meantime, history confirms that part of Bannon’s documentary. It does not cover everything, to be fair. And it doesn’t get everything right. Predictions of hyperinflation in the U.S. later in the documentary, for example, coming from the bailouts never materialized. Still, it is an interesting documentary worth watching. Nothing in it deserves the race card treatment Politico delivers.

The Community Reinvestment Act analysis part is pretty much spot on, but one part left out was the 1999 repeal of Glass-Steagall in the Gramm-Leach-Bliley law, thought in some quarters to have contributed to the financial crisis by allowing savings deposits to then be used in investment banking and insurance to satisfy capital requirements. This in turn helped provide the capital megabanks needed to blow up the credit bubble in the 1990s and 2000s that almost wrecked the economy when it popped. Perhaps that was one of the causes.

Of course, the Glass-Steagall repeal almost did not occur. The hold-up? Concerns by the Clinton White House and congressional Democrats such as Senators Chuck Schumer and Chris Dodd over, you guessed it, the Community Reinvestment Act, as chronicled by the New York Times’ Stephen Labaton in 1999: “The breakthrough in Friday’s legislation came in a backroom meeting at the Capitol soon after midnight, when a group of moderate Senate Democrats led by Christopher Dodd of Connecticut and Charles E. Schumer of New York — forced a compromise between Gramm and the White House over the legislation’s effect on the Community Reinvestment Act, a 1977 anti-discrimination law intended to encourage lending to minorities and others historically denied access to credit.”

The White House “wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities.”

When all was said and done, the final agreement provided that “no institution would be allowed to move into any new lines of business without a satisfactory lending record.”

In other words, Democrats were okay with rolling back Glass-Steagall the banks, investment houses, and insurance companies could merge so long as low-income lending programs would be expanded.

And with the prospect of new bank mergers on the horizon, community groups like the National Housing Institute were busy outlining plans for using the impending mergers to leverage CRA commitments from the new megabanks.

In 2000, CRA loans totaled $135 billion, according a Department of Treasury report required by Gramm-Leach-Bliley.  By 2007, CRA commitments from banks totaled $4.5 trillion, according to research by American Enterprise Institute’s Edward Pinto.  This facilitated the production of 26.7 million risky, non-traditional mortgages — like subprime and Alt-A.

Wall Street investment houses had their hands in this market, but it paled in comparison to Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, the Federal Housing Administration (FHA), and other federal agencies, which owned or guaranteed 70 percent of these risky loans, according to Pinto’s research.

Pinto traced the housing bubble to federal government policies to foster home ownership to low-income Americans who, it turns out, could not afford the loans they were taking out.  Specifically, it was HUD that imposed so-called “affordable housing goals” on Fannie and Freddie, which rose from 30 percent in 1993 to 56 percent by 2008. Also, the FHA helped to weaken lending standards, expanding government-held loans with down payments of 3 percent or less from $7 billion 1991 to over $174 billion in 2007, $160 billion of which were held by the GSEs.

By 2008, Fannie and Freddie held $1.835 trillion in higher-risk mortgages and mortgage-backed securities: $1.646 trillion, were GSE-issued mortgage-backed securities, and $189 billion of subprime and Alt-A private mortgage-backed securities, Also, because of the implicit backing of taxpayers, Pinto notes that the GSE-issued securities were automatically granted AAA bond ratings, and the GSEs were even able to misrepresent the quality of mortgages that underlined those securities.

Such leverage was made possible by congressional passage of the GSE Act of 1992, which established Fannie and Freddie’s capital requirements.  Writes Pinto, “The GSEs only needed $900 in capital behind a $200,000 mortgage they guaranteed — many of which by 2004-2007 had no borrower down payment. In order for the private sector to compete with Fannie and Freddie, it needed to find ways to increase leverage.”

So, the Community Reinvestment Act did play a role in the housing crisis. So did Fannie and Freddie. And repealing Glass-Steagall. And the Fed lending money to the banks. And the SEC creating the Bear Stearns exception. And the AIG derivatives. And the credit default swaps. And so forth. It all worked together.

Giving air to the Hoover Institution’s Pete Schweizer on the Community Reinvestment Act and Shelby Steele on the concept of racial guilt shaping public policy, or Dick Morris talking on Fannie and Freddie, is not “white nationalism” by any stretch of the imagination. Unless Politico’s aim is to also ascribe that racist brush on Schweizer, Steele and Morris, too, or anybody else who looks at low-income lending programs skeptically.

Nor was the movie some “crazy conspiracy theory to blame poor minorities for the 2008 crash of the global financial system,” as Dennis Kelleher, president Better Markets contends in the Politico piece. Did he even watch the movie?

In other words, the documentary, which you should watch, accurately reports on the combination of many factors, all working together, not a single cause that precipitated the financial crisis. Yes, the Community Reinvestment Act was one of those factors. Get over it. It was part of the deal to repeal Glass-Steagall, the loans were real as Pinto’s research backs up Schweizer’s numbers used in the documentary. Of course it was not the only factor in the crisis. And that is what Bannon’s documentary chronicles, rather comprehensively. So, enough with the drive-bys, already. Bannon isn’t going anywhere.

Robert Romano is the senior editor of Americans for Limited Government.

http://netrightdaily.com/2016/12/bannons-movie-right-community-reinvestment-act-contribute-financial-crisis-among-things/

Comment

I have been writing about the need to repeal the Community Reinvestment Act of 1993 and HUD anti-discrimination rules ever since the 2008 Meltdown and these laws are still on the books and they need to be repealed.

Norb Leahy, Dunwoody GA Tea Party Leader