That's why this week's Financial Industry Inquiry Commission hearings were so exciting, such a public service. The testimony of Charles Prince, former CEO of Citigroup, a too-big-to-fail bank that received $45 billion in bailouts and $300 billion in taxpayer guarantees, was riveting. You've seen it on the news, but if you were watching it live on C-Span, the stark power of his brutal candor was breathtaking. This, as you know, is what he said:
"Let's be real. This is what happened the past 10 years. You, for political reasons, both Republicans and Democrats, finagled the mortgage system so that people who make, like, zero dollars a year were given mortgages for $600,000 houses. You got to run around and crow about how under your watch everyone became a homeowner. You shook down the taxpayer and hoped for the best."
Note: That isn't actually a quote as she goes on to say. I've watched almost all of the hearings at this point, and I didn't find them as devoid of content as did Peggy Noonan. But she certainly nails it with respect to the dance that these postmortems usually resemble. In fact, the gist of her fake quote above was uttered at least a few times, usually followed by someone trying to change the subject and obscure the dialog with terms of art.
One statistic that I've only partially verified is that home ownership (which was steadily increasing already) went from something like 64% at the enactment of the CRA to a whopping 69% at about the time of the bubble's busting.
That is, after having life breathed into the system by having Andrew Cuomo sue the pants off banks and accusing them of racism (in the case I'm aware of, a bank in a black neighborhood, staffed by black loan officers). Wikipedia adds a few more points about the politisization of the system here:
CRA regulations give community groups the right to comment on or protest about banks' non-compliance with CRA. Such comments could help or hinder banks' planned expansions. Groups at first only slowly took advantage of these rights. Regulatory changes during President Bill Clinton's administration allowed these community groups better access to CRA information and enabled them to increase their activities.
In an article for the New York Post, economist Stan Liebowitz wrote that community activists intervention at yearly bank reviews resulted in their obtaining large amounts of money from banks, since poor reviews could lead to frustrated merger plans and even legal challenges by the Justice Department. Michelle Minton noted that Chase Manhattan and J.P. Morgan donated hundreds of thousands of dollars to ACORN at about the same time they were to apply for permission to merge and needed to comply with CRA regulations.
According to the New York Times, some of these housing advocacy groups provided early warnings about the potential impact of lowered credit standards and the resulting unsupportable increase in real estate values they were causing in low to moderate income communities. Ballooning mortgages on rental properties threatened to require large rent increases from low and moderate income tenants that could ill afford them.
Housing advocacy groups were also leaders in the fight against subprime lending in low- and moderate-income communities, "In fact, community advocates had been telling the Federal Reserve about the dangers of subprime lending since the 1990s", according to Inner City Press. "For example, Bronx-based Fair Finance Watch commented to the Federal Reserve about the practices of now-defunct non-bank subprime lender New Century, when U.S. Bancorp bought warrants for 24% of New Century's stock. The Fed, rather than take any action on New Century, merely waited until U.S. Bancorp sold off some of the warrants, and then said the issue was moot." However, subprime loans were so profitable, that they were aggressively marketed in low-and moderate-income communities, even over the objections and warnings of housing advocacy groups like ACORN.
Does it sound like a circle jerk to you too?