The Bailout Made Easy

 Posted by on 30 September 2008 at 5:03 pm  Economics, Finance, Politics
Sep 302008

The cover from this week’s edition of The Economist reduces the bailout to its essentials:

(Unfortunately, the article itself supports the bailout.)

In contrast, 8 years ago Howard Husock wrote the following about the Community Reinvestment Act in “The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities“:

…Even without a no-down-payment policy, the pressure on banks to make CRA-related loans may be leading to foreclosures. Though bankers generally cheerlead for CRA out of fear of being branded racists if they do not, the CEO of one midsize bank grumbles that 20 percent of his institution’s CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure. “The problem with CRA,” says an executive with a major national financial-services firm, “is that banks will simply throw money at things because they want that CRA rating.” From the banks’ point of view, CRA lending is simply a price of doing business—even if some of the mortgages must be written off.

…Looking into the future gives further cause for concern: “The bulk of these loans,” notes a Federal Reserve economist, “have been made during a period in which we have not experienced an economic downturn.” The Neighborhood Assistance Corporation of America’s own success stories make you wonder how much CRA-related carnage will result when the economy cools.

I think we’re finding out exactly how much right now…

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