You heard it on Rush and in the Presidential Debate. All the Republican candidates are repeating it. The credit crisis is Jimmy Carter's and Bill Clinton's fault. If you believe that, let me sell you a battleship.
There is a theme abroad in the land that few seem willing to challenge. I first heard it from my boss’s insurance man, a dedicated Texas Conservative, a few days ago as we discussed the credit crisis. I am a Civil Engineer and I manage construction projects for a general contractor in Arlington, Texas, a suburb half way between Dallas and Fort Worth. As the only professional on staff I get to talk to the bankers, attorneys and insurance representatives on a daily basis. Most of them are withholding their opinions while the mess gets sorted out but the real ideologues have taken their cue from Rush Limbaugh and can explain to you what went wrong and whose fault it is.
They say that the Democrats passed a law, under Jimmy Carter, that forced FNMA (the Federal National Mortgage Association, formerly Administration) to lend money to "unqualified borrowers" (read poor black and brown people) and, after 12 years of sensible Republican government, Bill Clinton reiterated that madness and all of those loans came due last year, crashing the mortgage system. Its a perfect explanation. Democrats transfer wealth from hard working bankers to black people and foreigners and destroy the economy. It only has one problem; its a fantasy.
The Community Reinvestment Act, the law they are talking about, was signed by President Carter in 1977. It was in response to a practice called "red lining". (now we’re getting into country where the language gets nasty). Most towns, north and south, in 1964 or 1965, had neighborhoods where almost everybody was black (nigger town) or hispanic (little mexico) or polish (honkytown) or what have you, and with the passage of the civil rights act, those were supposed to disappear. The one thing that kept them alive was the practice of banks to refuse to lend money for the purchase of property in those neighborhoods. They drew a 'Red Line' around South Philadelphia and East Harlem and Central Los Angeles and didn’t let people buy houses inside the lines. The CRA ordered banks to report the real estate loans they had made within a local area around each of their branches. If they weren’t loaning money within a few blocks of the branch, they had to explain why.
The act really did expand lending in working class neighborhoods. My wife was a realtor in the Oak Cliff area of Dallas when it came into effect and she discovered a market her fellow realtors had not thought of. In the older neighborhoods, where most houses were rentals, there were owners willing to sell for prices that could be afforded by working people. An example. A house on Clarendon, just west of Hampton. Built in 1945, it was just 800 square feet, 2 bedrooms 1 bath on 7,500 sq ft of urban lot. The owner moved in as a bride when her Marine came home from the south Pacific. Her husband dead and her health deteriorating, her kids wanted her in an old folks home close to them in Austin. She wanted to sell for $30,000 ( in 1990). Sally found a young man just out of the Marine Corps with a new bride and a widowed mother in law. All three worked concessions at Reunion Arena for a little above minimum wage. With all of them signing and his GI bill loan, they could just afford it if she would give them $3,000 credit for painting the house. I drove by the other day and they’re still in it. The houses around them are fresh painted and have pumpkins on the porch ready for trick or treating. The old Methodist church across the street has a new coat of paint and the parking lot is full on Sunday. The CRA has done just what its supposed to do. The Bank of America, which has taken over Oak Cliff Bank about 3 miles east on 12th street, was required to loan money to good working people living in the shadows of the "Top of the Cliff Building" and my neighborhood looks and feels better.
The current mess has been caused by deregulation and privatization. 'Liar loans' and 'interest only' mortgages were invented by private mortgage companies unregulated by the Fed. CDO’s (Collateral Debt Obligations, essentially many mortgages sliced and diced into bonds) are opaque instrument s issued by private banks. Credit Default Swaps are insurance sold to speculators against their risk in loaning money. None of these things have to do with government, poor people or Democrats. On CSPAN tonight there are Senate Banking Committee hearings n the subject. They’ll repeat. You owe it to yourself to watch if you can. In the next 19 days you will hear the theme of 'Democrats forced the banks to give money to the black people and they crashed the system'. Study up. Its a lie and its worth knowing how to call it.