Capital New York

James D. commented on Bloomberg: 'Plain and simple,' Congress caused the mortgage crisis, not the banks

I am amazed at this conversation. There is absolutely no question that Congress was not driving the banks to make these loans. Not only has the CRA been around since 1977, but it only applies to deposit-taking institutions -- and those institutions have declined dramatically in importance in the last 25 years (mostly since the S&L crisis in the late 1980s). According analysis from the Federal Reserve, only 6% of the subprime loans in the last decade were CRA loans. Also, even if Congress did pressure banks to make these loans -- which doesn't matter, since banks weren't making these loans, independent mortgage lenders were, Congress never told the subprime lenders to go "granny hunting" as Countrywide Mortgage lenders are on record as talking about their subprime strategy (their strategy was: target the old and uninformed!). Congress never told Wall Street investment banks to create Collateralized Debt Obligations based on these loans. Congress never told Wall Street investment banks to use those CDOs to make new securities ("CDOs squared"). And Congress never told Wall Street to use the old insurance instrument of credit default swaps as a gambling tool, and make a whole set of bets and not have the capital to cover them should they need to cover them. I'm sorry, but anyone who says that "Congress made Wall Street do it" is either ignorant of what happened, or a liar. Bloomberg is not an ignorant person.

Posted on November 1st, 2011 8:03pm