Given the gigantic and seemingly-endless debate that we as Americans are being treated to about what caused the recession, who's to blame, whether or not the Community Reinvestment Act played a role, what the government should do, I think it's time that we cleared the air with one simple truth:
It's the bank's fault.
This statement might seem cavalier in its simplicity, but let's take a step back and think in basic economic terms.
If I loan someone $100, $100 I took from a friend, and lose it, I should have done my homework, but the person who I lent to should have paid me back. Even steven, right?
What about when I do this 20,000 times? Doesn't the individual responsibility of each deadbeat decrease and my monumental ineptitude start to run the show?
"Fool me once, shame on me. Fool me twice, shame on you."
Banks made an institutional decision to make risky loans en masse. Sure, many people should not have taken those loans. Then again, many of them didn't know how unfair the loan conditions were due to pushy and deceptive advertising and lending institutions hiding behind reams of abusively-constructed, and probably illegal, legalese. Further, many people of color took these loans because the choice wasn't between a sub-prime mortgage to get a second home and nothing but between ANY home and nothing. People of color took these loans because banks would illegally direct them to these loans even when they qualified for prime loans.
No one forced banks to sign a single loan. (Sure, laws are on the books requiring them to sign to people without discrimination, not to mention laws like the CRA that actually require some specific actions on the part of lenders. The fact that banks routinely flout these laws should be unsurprising to anyone who pays attention). They made a gamble. They lost. Now we, as taxpayers, as workers, as home owners, as renters, as citizens in a destructive capitalist economy, are paying the cost of their gamble.
Can anything else indicate the insanity of an economy that some people basically playing craps with other people's money can so dominate the amount of wealth out there that them rolling snake eyes means that I lose my shirt?
Deceptive conservatives and market libertarians like at the CATO Institute will try to argue that the Community Reinvestment Act or interest rates set by the Fed or deregulation forced banks to sign these loans. This is snake oil, and I wonder who they think is smart enough to buy it.
Does anyone honestly think that any bank in existence said, "Hold up. This loan is too predatory. We'll make too much money off it. It's just too much of a risk. Please, federal government, stop us from making money?"
Given how collections agencies routinely use illegal pressure and scare tactics to try to squeeze blood from turnips, can any rational human being expect that banks didn't think they'd be able to get their money back?
The fact that NO SUCH movement emerged until long after the seeds of the catastrophe had been sown, and even then this movement was far too weak and far too minimal to do anything, alone demonstrates how dishonest CATO and their ilk are being.
And do we honestly believe that Fannie Mae, Freddie Mac, Washington Mutual, and every other financial institution that got slammed by the recession just sat there powerless while deregulation made it so that they would ruin themselves, like some Greek tragedy? You'd think they'd have raised a peep.
No, these institutions used their political heft to guarantee that this climate would exist. They did so out of sheer, naked greed. Can CATO point to the millions that these companies spent to try to get Congressmen to regulate them, or to change interest rates, or to create public service ads about the dangers of sub-prime loans?
Conservatives and market "libertarians" are trying to pretend that banks were powerless to do anything. But neither the Community Reinvestment Act, nor financial deregulation, nor the Federal Reserve, prevented banks from not offering sub-prime loans. Banks have substantial leeway to turn down loan applicants, to evaluate credit risks, to change interest rates.
And the Community Reinvestment Act scapegoating really takes its place among the dishonesties propagated by conservatives, no small task. To quote one of my favorite commentators on race in America, Tim Wise:
First, the Community Reinvestment Act only applies to banks and thrifts that are federally-insured. This means that the independent mortgage brokers, who are responsible for half of all the nation's sub-prime lending—and who have been writing such loans at more than twice the rate of banks and thrifts—aren't even covered by the law. And make no mistake, it was the hand of the mortgage broker, more than any other, that precipitated the housing bubble.
For God's sakes, "stated income" loans let people write in crayon, "1 JILLION DOLLARS", and be considered for a loan!
Finally, let's consider for just a second how wonderfully special it is for someone, anyone, let alone hundreds of apparently well-educated people in cushy think tanks and behind editorial desks, to not only blame deregulation (the thing that these guys loved) for the problem but to imply that deregulation forces people to do anything. By their logic, if the government declares murder legal tomorrow, when I stand over the burning corpses of George W. Bush, Dick Cheney, Bill O'Reilly, and twenty idealogues from the CATO Institute, I will be able to say, "The government made me do it by making it legal!"
Deregulation is simply eliminating or reducing a law. It doesn't make someone do anything. It lets them do something. Banks decided to take advantage of this opportunity. Nothing forced them to. Even their legal requirement to their shareholders didn't require this insanity: In fact, it would have demanded that banks NOT provide these clearly risky loans, nor try to bundle bad loans into good ones, nor throw good money after bad, nor engage in any of the other deceptive (and possibly illegal) accounting tricks that financial institutions performed in order to try to magically transmute bad loans into good.
It is true that the economic collapse is a complex intersection of numerous factors. It is also true that what we should do about it as a society is up for debate. But where we place the blame for this catastrophe should be clear by elementary logic and reasoning.