Compassion, not greed, caused crisis

Pundits and politicians recently tossed the word “greed” around concerning the stock market plunge. But greedy, overzealous bankers and investors did not cause the disaster and forthcoming bailout – overly compassionate laws passed during democratic administrations did.

The dramatic failure of compassion for the poor in this country began with President Jimmy Carter and the 1977 Community Reinvestment Act, intended to make banks foster local economies – primarily the poor.

The act states, “regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.”

The act requires banks to lend to low-income applicants regardless of their ability to pay.

In other words, the bankers who were called “greedy” by the politicians and pundits were merely doing what they were told – lend to people who can’t pay back debt.

This act was created under the Carter’s administration, and reinforced by President Bill Clinton in 1995 by making banking industry’s CRA ratings public on the Internet.

Furthermore in the 1980s, activist groups like ACORN charged that the banking industry was not fairly lending to minority groups.

This claim was true, because the Home Mortgage Act, created in the 1970s, made public those who were denied a loan, and their race.

“In fact, minority mortgage applications were rejected more frequently than other applications,” Stan Liebowitz writes in the New York Post, “but the overwhelming reason wasn’t racial discrimination, but simply that minorities tend to have weaker finances.”

The CRA urged bankers to loan to these groups anyway, which in turn created the so-called “bad” home loans we hear so much about today.

It wasn’t greedy bankers, but compassionate politicians who didn’t understand the potential consequences of loaning to lower-income applicants.

By Allen Arrick Editor in Chief