Trying to blame poor nonwhite people and social democratic governance for the faults of Wall Street seemed to me several bridges too far back a decade ago. Yet Steve Moore and Larry Kudlow seem to have gained rather than lost influence on the right from their eagerness to do so. They very sharp Barry Ritholtz takes exception: Barry Ritholtz (2016): No, the CRA Did Not Cause the Financial Crisis: "Two of Donald Trump’s economic advisers, Lawrence Kudlow and Stephen Moore... lay the blame for the credit crisis and Great Recession on the Community Reinvestment Act, a 1977 law designed in part to prevent banks from engaging in a racially discriminatory lending practice known as redlining. The reality is, of course, that the CRA wasn’t a factor.... Showing that the CRA wasn’t the cause of the financial crisis is rather easy. As Warren Buffett pal Charlie Munger says, 'Invert, always invert'...

...Assume Moore and Kudlow are correct, and the CRA did require banks to lend to unqualified, low-income buyers.... Here’s what we should have seen:

  • Home sales and prices in urban, minority communities would have led the national home market higher, with gains in percentage terms surpassing national figures;
  • CRA-mandated loans would have defaulted at higher rates;
  • Foreclosures in these distressed urban CRA neighborhoods should have far outpaced those in the suburbs;
  • Local lenders making these mortgages should have failed at much higher rates;
  • Portfolios of banks participating in the Troubled Asset Relief Program should have been filled with securities made up of toxic CRA loans;
  • Investors looking to profit should have been buying up properties financed with defaulted CRA loans; and
  • Congressional testimony of financial industry executives after the crisis should have spelled out how the CRA was a direct cause, with compelling evidence backing their claims.

Yet none of these things happened. And they should have, if the CRA was at fault.... If that isn’t enough... Where did mortgages, especially subprime mortgages, default in large numbers? It wasn’t Harlem, Philadelphia, Baltimore, Chicago, Detroit or any other poor, largely minority urban area covered by the CRA. No... Florida, Arizona, Nevada and California... suburbs and exurbs...

#noted #finance #publicsphere