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Ellison angered and shocked that some are blaming the poor and blacks for Wall Street’s troubles

Keith Ellison
Keith Ellison

Much to the shock and contempt of Keith Ellison, the culprit responsible for today’s financial crisis has been discovered by those on the right end of the political spectrum.

The villains?

“Poor blacks caused this,” said Ellison, Minnesota’s the 5th District congressman, scornfully. “That’s what we’re supposed to believe. Little ACORN caused this. The mighty captains of Wall Street got taken down by little ACORN and poor black people. That’s what you’re hearing on the right. The gall and audacity of this is beyond imagination.”

In fact, many, including 6th District Rep. Michele Bachmann, seem to be saying that the demise of Wall Street can be traced to the Community Reinvestment Act (CRA) of 1977.

That’s right. In the eyes of some, today’s problems aren’t a product of greed, or lack of regulation, but instead can be traced to the Jimmy Carter era. That’s when Congress passed CRA, an act that encouraged commercial banks to invest in housing in cities that were facing both redlining and major decline.  The idea was simple: Stabilizing neighborhoods, through home ownership, would stabilize cities.

The act had the support of a nonprofit organization, the Association of Community Organizations for Reform Now (ACORN). It survived two terms of Ronald Reagan, the Gingrich era and three terms of Bushes before apparently creating today’s crisis.

But now, a handful of economists and a lot of conservatives who are looking for a scapegoat claim that it was the CRA that encouraged risky lending that led to the defaults that have led to the mess we’re in.

In one of her recent interviews with CNN’s Larry King, Bachmann seemed to be referring to the CRA when she said this:

“If you look at the housing crisis, government has to take its share of the blame. After all, government was goading these mortgage lenders, saying you’re redlining. You’re being discriminatory. If you don’t give loans out to marginally credit-worthy people, we’re going to come after you. The Democrat-controlled Congress wants to have these mortgage lenders make loans to people with marginal credit.

Rep. Michele Bachmann
Rep. Michele Bachmann

“Well, guess what? If you aren’t making money lending, this is not a shock when you have loans that aren’t paid back. And now the American people have to come in and step in and pay for these bad loans.”

Bachmann is not alone in seeming to point fingers at the poorest for the collapse of the richest.  Investors’ Business Daily and The Wall Street Journal also have opined that the CRA is a major player in the collapse. Conservative bloggers and radio talk show hosts are happily pointing out that Jimmy Carter and, of course, Bill Clinton are the problem.

But most economists seem to agree that, at most, 20 percent of the bad loans that have led to the collapse can be traced to CRA.

Time magazine pointed out in a recent article that CRA-regulated institutions — meaning commercial banks — weren’t the big players in the run-up of bad loans.  The subprime mortgage binge, Time reported, came from 2003 to 2006 and was brought about by unregulated mortgage brokers financed by now-busted, unregulated Wall Street investment banks.

Says Ellison: “To suggest that the greatest financial crisis we have faced since the Great Depression was caused by legislation that was created to help prevent low-income individuals from assuming high-cost, subprime loans that have caused the crisis today is absurd. To suggest that struggling families trying to keep their home brought down the Titans of Commerce, the Masters of the Universe on Wall Street, is ludicrous. To suggest someone who is raising three children while holding down two minimum wage jobs on a high school education was able to stall one of the greatest economic engines on Earth needs their head examined.”

How does he really feel?

“I’m really steamed,” said Ellison.

Comments (9)

  1. Submitted by Loretta Holscher on 09/25/2008 - 11:46 am.

    Obviously, Mr Swift has not been victimized by unscrupulous lenders. I counseled a couple whose Uncle encouraged them to buy several worthless properties and then thanked them for helping him buy his Lamborghini.

  2. Submitted by Lee Wenzel on 09/25/2008 - 11:55 am.

    Nichols Vardy is a U.S. citizen managing a hedge fund from London and heads a monthly meeting of the 50 largest London hedge fund mangers. He writes: “Highly educated financial engineers have spent the last two decades slicing and dicing risk in a manner that was both opaque and difficult to understand for regulators. At the end of 1996, the top 10 U.S. banks had nearly $16 trillion worth of derivatives on their books. By June of 2008, the Bank of International Settlements estimated that the notional value of all outstanding derivatives hit $1.144 quadrillion (That’s $1,114 trillion). The astonishing outstanding value of these derivatives, and the leverage they represent, dwarfs the amount of outstanding subprime loans.” (The Global Guru, Kieth Ellison understates the case.

  3. Submitted by Jason Tunay on 09/24/2008 - 05:16 pm.

    The name of politics is protect those who contribute to your campaign. I guarantee it isn’t the poor or minorities that Rep. Bachmann et. al. are trying to protect.

    While I respect Rep. Ellison for being principled and trying to place blame where it needs to be placed, he, like so many others before him, will eventually have to give in to the special interests and take their money.

    Money is what wins elections and the ordinary citizenry does not have any.

  4. Submitted by Paul Mielke on 09/24/2008 - 05:48 pm.

    Excuse me, Mr. Swift. Did you read the article above before going off on your anti-regulatory diatribe??

    It says that “The subprime mortgage binge, Time reported, came from 2003 to 2006 and was brought about by unregulated mortgage brokers financed by now-busted, unregulated Wall Street investment banks.”

    I can’t vouch for the accuracy of Time magazine, but if true, you’re barkin’ up the wrong tree, buddy.

    These banks and ‘mortgage companies’ are completely and utterly responsible for their reckless behavior. The finance industry that makes risky products, mixes junk with the good, and then rates it like it’s high quality stuff is to blame!

    Innovation in finance = freedom to deceive and a free reign for greed! Laissez-faire self-regulation has clearly demonstrated that in this case at least it can fail very spectacularly….. Standards need(ed) to be established on these “innovations” that turn out to be fraudulent houses of cards!

  5. Submitted by Thomas Swift on 09/24/2008 - 01:34 pm.

    CRA is not the smoking gun, but it is certainly an accomplice.

    “The debate surrounding the passage of the CRA was contentious, with critics charging that the law would distort credit markets, create unnecessary regulatory burden, lead to unsound lending, and cause the governmental agencies charged with implementing the law to allocate credit. Partly in response to these concerns, the act adopted by Congress included little prescriptive detail.”

    “The law gives the agencies considerable discretion and flexibility to fashion programs and procedures to carry out the purposes of the law, to issue implementing regulations that include measures of performance, and to modify those regulations in response to changing markets.”

    CRA manipulated the oversight function of the Federal Reserve to facilitate leftist social engineering. That is a fact.

    It put the mortage banking industry in the position of HAVING to make loans to people that didn’t meet the basic standards of good fiscal management. That is a fact.

    Throw two government sponsored (read taxpayer insured)entities known as Freddie Mac and Fannie Mae into the mix and you have the making of a financial meltdown.

    In time, the mortage industry used the law to it’s advantage and created mortage products that not only encouraged unwise transactions by people of little to no means, but enticed the middle class customer to over extend themselves as well. And the government continued to assist by raising the amount that could be financed until, under Bill Clinton, banks were free to foot the bill for 100%…”no money down”, anyone?

    Can this crisis be laid at the feet of the poor? Of course not; but Congresswoman Bachmann’s statements are on the mark.

    Almost every one of us has a part to play, we are all guilty. But most importantly, it needs to be understood that this mess was not created by under regulation, but of deliberate manipulation of regulation for political purposes.

    Ever heard of the law of unintended consequences? Yeah, well now we’re living it.

  6. Submitted by George Hayduke on 09/25/2008 - 11:12 am.

    Paul asks–Excuse me, Mr. Swift. Did you read the article above before going off on your anti-regulatory diatribe??

    Of course not. And even if he did, Swiftee has never let the facts get in the way of his vicious rants against the poor and people of color.

  7. Anonymous Submitted by Anonymous on 09/25/2008 - 11:35 am.

    Guess again who’s to blame for U.S. mortgage meltdown
    Analysts point not to greed, but to social activist politics
    Posted: September 19, 2008
    By Drew Zahn

    While many pundits are pointing to corporate greed and a lack of government regulation as the cause for the American mortgage and financial crisis, some analysts are saying it wasn’t too little government intervention that cased the mortgage meltdown, but too much, in the form of activists compelling the government to pressure Freddie Mac and Fannie Mae into unsound – though politically correct – lending practices.

    If the shoe fits…

  8. Submitted by Dameun Strange on 09/25/2008 - 12:43 pm.

    As Minnesotans we should be embarrassed by Bachmann’s views. This precisely the kind of thought that has continued to hinder progress in America. How can we continue to blame people who have very little power while we give CEO and corporations free reign and when they mess up (and when they do its usually pretty bad), we bail them out. Bachmann must be stopped. Thank you Keith for standing up.

  9. Submitted by Vonya Ereye on 09/26/2008 - 12:57 pm.

    Congresswoman Bachmann is exactly right in her comments. There are a lot of dirty hands in this debacle and government can’t blame pure greed.

    Who’s defaulting on the mortgages that are causing this mess? Oh, the lower credit and lower income former renters? Hmm, so who was dumb enough to give them the loan? Oh, the greedy mortgage companies? If that were an open and shut case, everyone would agree to let the greedy mortgage companies fail, but they don’t say that, now do they?

    Why would these greedy mortgage companies lower their standards and give credit to those that they have refused to for so long? Oh, because they saw new prey they could profit from? Oops, sorry, it’s because they were accused of redlining, discriminating against the lower credit class, practically threatened to find a way to get these people into the American Dream of home ownership as though it is an entitlement now and then given cheap money to make the loans available.

    Well, you can’t force a greedy mortgage company to lose money lending to people they know are too high risk and may not be able to pay the money back, so how did they do it? That’s right, the GSE (Government Sponsored Entity) of Freddie and Fannie said “Don’t worry about their creditworthiness because IF they don’t pay you back, we’ll buy your loan so you don’t have to assume the risk.

    Well, I don’t know about you, but if someone said I could invest money for a potential big payoff with no downside risk, I am going to find the riskiest loans I can find (I guess to a certain extent, that is greed).

    So why would Freddie and Fannie be willing to do this? Oh, you don’t say. The government stands behind every loan Freddie and Fannie own. So, if Freddie has a bad loan, the government will back them up and make sure they don’t get hurt? That’s basically right.

    That’s not too hard to figure out. Greedy mortgage lenders given an opportunity to write business, sell the mortgages to Freddie and Fannie, who are backed by bad government policy of guaranteeing their success.

    I’m certainly not claiming that the poor and the blacks being scapegoated caused this as we can’t expect them to be financially smart enough to refuse to take the loan saying “sorry banker, but I don’t think I’m going to be able to make those higher payments when the loan resets, I better just stay in the rental market”.

    I am saying, and Ellison cannot deny this, that it’s the government intervention, the government accusations of redlining and the government guaranteeing the loans that made it all possible.

    From there, it only gets more intertwined and confusing.
    All I know is after all those dirty hands, responsible ole you and me are going to be the ones to wash them.

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