More Demonizing the Banking System?
So, now the government is back at it. Blaming the housing bubble on every institution but itself (too much liquidity and Clinton’s Community Reinvestment Act are to blame.
The scapegoat this week is Wells Fargo in the crosshairs. Here is a snippet from the WSJ:
“The U.S. government filed a civil lawsuit against Wells Fargo & Co., accusing the biggest U.S. mortgage lender of behaving recklessly in issuing federally backed home loans.
“The suit, filed by Preet Bharara, the U.S. attorney for the Southern District of New York, seeks hundreds of millions of dollars” in damages on behalf of the Federal Housing Authority, a government agency that doesn’t make loans but insures those made by lenders that meet its standards. The action is the latest example of prosecutors and regulators going after banks for alleged misconduct in the housing boom and financial crisis.”
Wells Fargo says it will vigorously defend itself. I hope so. And so do many others.
The fun part is on WSJ.com, the comment section, there are a slew of comments most of them spot on (subscription required). This one is from a guy with the handle Thomas Paine:
“Dear Wells Fargo, fight the government. You did nothing wrong, you followed the rules government created. On behalf of the American people, fight this so the world can understand who is to blame: the government & the Community Reinvestment Act!
Fight so we can become America again... land of the free, not pushed around by a heavy handed Federal government!”
It’s true. In 1993, the Boston Fed put out a paper that said there was rampant descrimination and so it recommended that banks be forced to keep loans in the communities they were based, i.e. lower standards when making loans.
Here is another comment that is interesting from someone called Mary Childs:
“Mortgage companies have learned a hard lesson. When government decrees that your loan portfolio reflect the demographics of the population, run as fast as you can to a saner country. Affirmative action in housing destroyed the world's economy, and now it's Wells Fargo's fault? They, like all the taxpayaers in the US, are victims of a government gone wild with dreams of utopia where everyone gets a house whether or not he can afford one. The scenario is now into the bizarre stage of corrupt government.”
The Cato Institute had this to say back in 1994 about the Community Reinvestment Act:
“Rather than being a positive trend, these recent actions allow government and special interest groups to influence and even dictate lending decisions. Instead of being expanded, the CRA should be repealed.
“The CRA is based upon the underlying notion that institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered. The federal supervisory agencies undertake a two pronged effort to ensure that the obligation mandated under CRA is fulfilled. First, CRA requires that the appropriate federal supervisory agency use its authority when conducting supervisory examinations to encourage institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation of the institution. The various regulatory agencies, such as the Fed and the OCC, give each institution a written evaluation of its record in meeting community needs and assign a rating of either ‘outstanding,’ ‘satisfactory,’ ‘needs to improve,’ or ‘substantial noncompliance.’ A portion of the written report, as well as the rating, is released to the public.”
Whatever happened to results oriented lending? That would have kept banks from being forced to loan money to people who couldn’t afford it.