While the often-cited big picture conclusion is correct (the CRA was very harmful),
I don’t think we’re getting the series of events quite right.
Certainly, the Community Reinvestment Act sanctioned and encouraged subprime lending.
But I don’t believe banks were necessarily drawn kicking and screaming to participate.
To the contrary, subprime lending was profitable in the early 2000s, and defended strongly by such “champions of the poor” as Barney Frank. Recall, Barney explicitly stated that he was for taking risk on behalf of increasing home ownership for the poor.
So what regulatory consequence did this have? What those self-described infallible Democratic champions of regulation won’t tell you. It provided regulatory cover for the banks to bet on the housing market! A bet whose outcome was very good, that is, until it turned very bad.
So where does it follow that we should turn the keys over to these boneheaded regulatory policy makers?