Conservative Clarion Call: Lending To Minorities Is A “Disaster”
He should be sitting on the porch of some villa in Argentina, where he would probably stew over how he became the latest casualty of political correctness. Instead, he blithely slanders people of color and beyond some progressive circles it’s greeted with a collective shrug — or worse.
In an interview on his show on Sept. 18 with Rep. Xavier Becerra, D-Calif., Cavuto blamed excessive lending to "minorities" for the financial meltdown on Wall Street. (Rick Perlstein at OurFuture.org has the video, plus a scathing critique.) He asked if Becerra and other members of Congress weren’t complicit and "irresponsible" for "pushing for more minority lending and more expanded lending to folks who heretofore couldn’t get mortgages." Referring to mortgage financiers Fannie Mae and Freddie Mac, now placed in receivership by the feds, Cavuto said, "I’m just saying, I don’t remember a clarion call that said, ‘Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.’"
The assertion that a $700 billion Wall Street bailout became necessary, even in part, because financial institutions were catering to black people is deeply offensive and profoundly false. Yet it is not just the blather of an insensitive, right-wing cable talk host. It is part of a systematic campaign on the part of the right and the financial services industry to get out from under one of the few laws on the books that addresses discrimination in lending.
The Community Reinvestment Act was passed in 1977 in response to longstanding patterns of racial discrimination by the mortgage industry. Before passage of the act, it was common for bankers to maintain maps that often used actual red lines to demarcate neighborhoods — invariably predominately African-American — where they would not make loans, regardless of the credit-worthiness of the applicant. The lack of investment invariably locked these neighborhoods in a financial death-spiral; the less willing banks were to make loans in these neighborhoods, the more they decayed and became more of a credit risk.
What the CRA did was mandate that financial institutions demonstrate that they were working to "meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions." It did not mandate lower credit standards for historically underserved neighborhoods, but it did rate financial institutions on the basis of how well they served those communities. These ratings were taken into account when banks sought permission to expand or merge.
People who know better have chosen to present a wildly exaggerated, and fundamentally racist, interpretation of what the CRA does. One of the most blatant examples appeared recently in an Investors Business Daily editorial: "The Carter-era Community Reinvestment Act forced banks to lend to uncreditworthy borrowers, mostly in minority areas. Age-old standards of banking prudence got thrown out the window. In their place came harsh new regulations requiring banks not only to lend to uncreditworthy borrowers, but to do so on the basis of race."
A milder version of the canard is being peddled this week by syndicated columnist Charles Krauthammer: The CRA, he writes, "led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads."
But earlier this year a Federal Reserve Board report did not point to the CRA as a significant player in the mortgage crisis. In fact, the report said, "overall mortgage loans to borrowers in lower-income neighborhoods by CRA covered institutions in their CRA assessment areas has increased from 13.4 percent of their assessment area mortgage loans in 1994 to 16.2 percent in 2006 … Further, Federal Reserve research suggests that CRA covered institutions have been able to extend such loans profitably and that the performance of such loans is about the same as that of other mortgage loans."
The real crime lies in such reports as one done in 2007 by the National Community Reinvestment Coalition, which found that in 2005 African Americans were at least twice as likely to receive high-cost (in other words, subprime) loans as whites at the same income level in 171 metropolitan statistical areas. That’s not the law forcing business behavior. That’s business behavior in defiance of the law.
One of the institutions that has an "outstanding" CRA rating is Bank of America, which was healthy enough this year to swallow up the distressed mortgage lender Countrywide and the investment bank Merrill Lynch. Aggressive courtship of people of color communities clearly has not weakened Bank of America. But conservatives aren’t about to let the facts get in the way of a good story—you know, the one about the big, liberal federal government telling defenseless firms that they have to do business with shiftless "minorities," then file reams of paper to bureaucrats in Washington to prove they did it. Wouldn’t it be so much better if Wall Street were left alone to do what it wants, without the federal government telling financial institutions what to do?
Conservatives show no sign of dropping this issue. But neither are grassroots housing activists. One bill (H.R. 1289), sponsored by Rep. Eddie Bernice Johnson, D-Texas, would broaden the scope of the CRA to include financial institutions not currently covered by the law and would undo dilutions of the law that have taken place under President Bush. That bill hasn’t moved very far this year, but it’s a safe bet it will resurface in the next Congress.
As Congress struggles to figure out how to clean up the financial system mess, a growing consensus is emerging that a Wall Street bailout must be accompanied by a Main Street bailout. A Main Street bailout, moreover, will be ineffectual if it only addresses one side of the street. But the misguided belief that those who live on the "good" (read: "white") side of the street don’t have a vested interest in equity and fairness for those on the "bad" (read: "black" and "brown") side of the street is a hardy perennial.
For those who cling to that ethos, Neil Cavuto is their unabashed spokesman, on the network where race-baiting is part of the "fair and balanced" menu. Which explains why he’s still on the air.