So now it's all the banks' fault?

By Donald Hank

When the banks crashed in 2008, smart people on the Right figured out that the CRA (Community Reinvestment Act, which forced banks to lend more money to the "underserved communities") had something to do with it.

A lot was said and written about the CRA and the case against it looked pretty airtight.

But then leftwing analysts wrote damage control commentaries supposedly showing that the CRA played only a minuscule role. They argued, among other things, that the CRA was enforced only on certain banks while others did not have to comply.

Conservative observers bought into this story without further examination, and all of a sudden, everyone was looking elsewhere for a culprit: They found blood on the hands of the Fed, the corporations, the lobbyists, etc, all of whom certainly had played a role.

I must agree, of course, with the libertarians and even the OWS crowd that corporations and banks contributed in no small way to the crash.

And I agree with Ron Paul, Alex Jones, Steph Jasky, Karl Denninger, Bill Stills and others that the Fed, with its inflationary policies and cheap credit in the midst of a housing bubble, had a huge hand in the crash. There is a lot of political hay to be made off the anger of many in the Occupy Wall Street crowd who can see only corporate greed as the culprit. Conservatives who spell out the entire narrative, including the role of leftist government, risk losing their constituency and their followers.

So with all these individuals and groups jumping on the anti-corporate and anti-Fed bandwagon, should the CRA get off Scott free?

Amidst the lynch crowd fervor, should we really let the government off the hook?

I go on the theory that the truth is always best, even if it is bad for one's popularity at times.

Thus, one side of the rather complex discussion has been muted, and yet, that is the message we all need to focus on right now, if for no other reason than that it is a blind spot that could cause many to think the private corporations are solely to blame, when the government was the culprit that got the ball rolling toward the housing crash and subsequent subprime crisis by enforcing horrendous wealth redistribution law that was doomed to fail from the start. After all, exonerating a truly guilty party can only induce devious characters to do more mischief.

Case in point: taking advantage of the blackout regarding the seminal causes of the crash, Barney Frank, one of the most heinous offenders in the run-up, hypocritically teamed up with Chris Dodd after the crash to write tighter banking regulations, slyly dissimulating that his own support for the CRA had contributed to the economic/financial downturn in a way that some are now calling criminal.

So let's be honest and let the chips fall where they may. The government played a seminal role in the crash with its CRA enforcement, as aided and abetted by ACORN, even though a superficial analysis may suggest it was not that big a role. So how did this devastating law do its dirty work in the shadows?

It pulled off this feat because it was not the government forcing banks to make loans to the insolvent, which was just an initiator or catalyst. It was rather the less visible effect of the CRA's policy allowing (force was soon no longer needed) the banks to make bad loans with the tacit guarantee that the loans would be guaranteed by government.

See, if a law forces some people to use unsound banking policies, i.e., deliberately lending to the insolvent, then it can hardly prosecute banks that do this, even if they were not the ones originally targeted by the legislation. Thus the CRA opened the flood gates for horrendous banking practices never seen before on this scale by providing a huge incentive for banks to make money hand over fist at taxpayer expense.

All of this is further compounded by the fact that neither banks nor most (if any) American corporations can be thought of as representing true free market capitalism. So for the OWS activists or anyone else to blame the crash on capitalism is like blaming saber tooth tigers for making the outdoors unsafe.

But we aren't talking about any of this now. Somehow, the narrative of the CRA as an insignificant contributor to our woes has assumed the status of settled science. We've been led down a rabbit trail by both the far left and the well-meaning right that got lost and started seeing only the role of the banks.

But you know what? This topic of government culpability is much too young to die. Let's drag it back onto the table again and take a longer look this time.

PS: I was going to post this at http://laiglesforum.com but when I tried to go there, I got the message "server not found." I have heard from other conservative bloggers that their blogs disappear at times. We also know what happened to Julio Severo, who was stripped of his ability to receive donations via PayPal because of his religious viewpoints. I will research this further and let you know what I find.

© Donald Hank