How Little Law From ’70s Brought The Financial System To Its Knees ~ | THOMAS SOWELL
How Little Law From ’70s Brought The Financial System To Its Knees
Investors.com ^ | November 20, 2009 | THOMAS SOWELL
Posted on Friday, November 20, 2009 8:10:42 PM by Kaslin
This is the second installment of a Monday series excerpting the chapter on political implications from Thomas Sowell’s latest book, “The Housing Boom and Bust.”
IBD Exclusive Series: Thomas Sowell on The Politics of the Housing Boom
In recent times, government officials have increasingly pressured banks and other lenders to lend to people whom they would not lend to otherwise.
One of the first federal government efforts to change the process of mortgage lending by private financial institutions was the Community Reinvestment Act of 1977. Like many government policies or programs, it began small and grew in scope and severity over the years.
The Community Reinvestment Act directed “each appropriate federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.”
These almost innocuous words nevertheless contain the implicit assumption that government officials are qualified to tell lenders to whom they should lend money entrusted to them by depositors or investors.
Although the Community Reinvestment Act had no major immediate impact, over the years its underlying assumptions and provisions provided the basis for ever more insistent pressure on lenders from a variety of government officials and agencies to lend to those whom politicians and bureaucrats wanted them to lend to, rather than to those whom lenders would have chosen to lend to on the basis of the lenders’ own experience and expertise.
(Excerpt) Read more at investors.com …