Don’t blame working poor for greed shown by lenders

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Myriam Marquez
Monday, March 2, 2009

Blame the hedge fund managers. The subprime mortgages. Mismanagement at Fannie Mae, Freddie Mac. Detroit automakers’ stubborn refusal to build more energy-saving vehicles.

Blame the regulatory apathy of the Bush years. The bookkeeping tricks. (War? What war? Not in W.’s deficit numbers.) The unregulated credit default swaps. The blind devotion to Wall Street without a thought for Main Street.

Most of all, blame unadulterated greed.

Just don’t blame the working poor and middle-class folks who bought into the American Dream that if you work hard, you can one day own your little castle. Don’t play class warfare after a decade of corporate welfare.

Conservative talking heads and some members of Congress continue to blame the subprime loan mess—which led to the housing collapse—on a 1977 law meant to help poor communities build wealth. The Community Reinvestment Act (CRA) requires banks and savings and loans to make credit available to poor communities that bank with them. In the 1990s, then-President Bill Clinton put more bite into the law by tying those institutions’ expansion to their efforts to make responsible loans to working folks.

Remember red-lining by banks? Because those of us who grew up here certainly remember the abuses, when blacks and Hispanics couldn’t get a break on a loan for a business or a home, even when non-Hispanic whites of comparable means got theirs.

Here’s the truth: Most sub-prime loans weren’t made by banks and savings and loans, which are subject to CRA rules. They originated with mortgage service companies—remember all those “deals” online?—or affiliates of banks that aren’t beholden to CRA rules.

Ellen Seidman ran the federal Office of Thrift Supervision from 1997 to 2001, which oversaw savings and loans. She writes in The Ladder, a blog at the New America Foundation, that “while many of us warned against bad subprime lending before the turn of the millennium, the massive breakdown of underwriting and extension of risky products far down the income scale—without bothering to even check on income—was primarily a post-2003 phenomenon. To blame a statute enacted in 1977 for something that happened 25 years later takes a fair amount of chutzpah.”

And here’s the kicker: The Bush administration weakened CRA enforcement in 2005, and that’s when the “creative” adjustable-rate mortgages shot up among banks and thrifts. Even then, they make up only about 20 percent of the subprime explosion, according to congressional testimony.

Were there poor people who got in over their heads? Absolutely—and the vast majority weren’t poor. Many were well-off speculators.

We need more financial leaders such as Leonard Abess Jr., the Miami banker who quietly turned over $60 million, part of what he earned from the sale of City National Bank, to 399 staffers—past and present. Not because he had to but because he believes in rewarding the hard work—at all levels—of those who helped him grow the bank.

Still, the cries of “class warfare” are only beginning in Washington. Next will come the GOP spin about President Obama’s push to reinstate marginal income tax rates for the richest 2 percent of Americans to what they were in 2000—39.6 percent. Bush pushed Congress to drop them to 35 percent.

Clinton delivered a $300 billion surplus to Bush, and the economy—except for a short dot.com bust in 2000—was rockin’. During the Eisenhower years, this country’s boom years that created a huge middle class, the marginal rate was 91 percent!

Myriam Marquez is a columnist for the Miami Herald. Readers can reach her by e-mail at mmarquez@miamiherald.com.

Last updated: 10:00 am Thursday, December 13, 2012

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