My current understanding is that the current financial meltdown had three key factors, all of which had their origins in Clinton policies instituted in the late 1990s. For one, Greenspan kept interest rates artificially low for what now seems to have been an overly long period of time. Two, Clinton's revisions to the CRA gave it "teeth", and non-compliant institutions could be denied the ability to expand, and targeted by social activists and discrimination suits. Three, Fannie Mae also changed the playing field, creating a huge market for risky loans, and bypassing the normal approval process.

In "Causes of the Current Crisis?" I asked for any evidence that there was anything false, misleading, or inaccurate about the scenario spelled out above. And, indeed, I'm still keeping my eye out for such arguments.

In response to the cartoon in this article, one commenter complains:

A free republic post becomes a right wing talking point. This was debunked over 6 months ago by credible economists and even the San Francisco president of the Federal Reserve. But it does go to the heart of the matter and expose the disdain the right wing in the USA has for blacks, the poor and those who need help to succeed.

So what have we here? Of course, we have the obligatory charge that anyone not agreeing with the commenter must be motivated by racism. (For which I am grateful: I mean, without gratuitous charges of racism, how else could I determine political alignment? ;-)) On the other hand, we have a claim some of the apparently most credible economic minds of our time think the idea is utter hogwash, and a link.

Going to the source, we hear two arguments, which I'll briefly summarize:

1. Bush reduced, in late 2004, the number of institutions bound by the CRA from 1,127 to 227.

This seems a rather dim sort of argument. If policy X (enacted by leader A) causes a bad result, and later person B then reduced, somewhat, the impact of policy X, does that mean A doesn't bear primary responsibility, still? Or that policy X then was never harmful? What an odd kind of argument.

Further, actually reading the links provided (did they even do this?) yields more contrary evidence. Although the number of controlled institutions declined, since the CRA still applied to the largest institutions, total controlled assets didn't change appreciably: "... these critics point out that through consolidation and inflation, the average size of banks has grown since the law's inception, so that the change does not substantially affect the amount of bank assets covered by the law." If true, that alone would be a damning counter-argument, but the author and his allies don't seem to notice.

Further still, the author also apparently doesn't notice that every single source he cites depicts groups on "his side" arguing vociferously that Bush & Cheney are being "evil" by scaling access to "affordable/predatory" (pick your favorite!) loans. That would seem a smoking gun, but it doesn't seem to register. (If CRA didn't increase these loans, then how could scaling it back have an effect? And you're also inadvertently testifying that "your side" was continually in favor of maximizing such loans!)

Next, this counter-argument focuses on the CRA alone, neglecting the impact that many think low interest rates and the actions of Fannie Mae apparently had. (Even without the CRA, the market created by FM's actions should have induced a frenzy of bad-credit lending.)

Finally, its hard to see how a minor revision, allowing only the smallest institutions greater latitude, a decade after the last major change, should have somehow negated a massive industry trend already underway, or erased the existence of millions of loans which had already been issued.

2. "... even lenders have not fingered CRA" / "profit motive"

Gordon and Klein end their piece with this salient paragraph: "It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did."

I've addressed the "profit motive" argument before: "Profit motive" is nothing new, but this explosion in risky loans is. What changed at the starting point of that explosion?

My theory: Yes, there was a "stick" in the form of the CRA, but there were also two carrots: a huge market for risky loans created by Fannie Mae, and rising demand (and thus housing prices) causes by the former effect. A counter to that argument is going to have be specific, not merely insist that "profit motive" alone caused a condition we'd never seen before.

Given that the institutions in question had already been feeding the hand that bit them (to turn a phrase) -- that is, donating to the powerful politicians who were able to decide if they could continue to expand -- it doesn't seem they'd have the moral standing to make such a critique. Nor would it seem a particularly wise business move, as those people are still in power and deciding on what to do about the bailout. And third, nobody's arguing the CRA alone is responsible, so I doubt they would either, even if they did decide (foolishly) to weigh in politically and point fingers.

So far, as I see how lame many of these counter-arguments are (many don't even seem to make a real effort), the more I get the feeling that the CRA + FM argument is probably right on the mark, or close. This leaves one rather uncomfortable about the media's role in all this, as well as saddened to see that one's opponents are willing to make, with a straight face, such silly arguments.