Have you ever heard of the Community Reinvestment Act (CRA)? If not, you should have. It is among the factors responsible for the worst housing crisis in America since 1932. CRA was enacted during the Jimmy Carter Presidency. It neither was repealed nor enforced during the Ronald W. Reagan and George H. W. Bush Administrations. President William J. Clinton enforced the law vigorously. CRA forced banks to make loans to people who had little or no ability to liquidate them. This created the subprime market which in turn created the housing bubble. That bubble burst, as all bubbles do, leaving us with a terrible housing crisis. If something similar were to occur in the private sector the wrath of Congress soon would be felt.
CRA ought to be repealed. In any reasonable situation it would be. But it won't because too many powerful interests in Washington want to see it continue as they attempt to manipulate society to fit their ideology. Powerful Members of Congress are talking about strengthening the law. What does that mean? In addition to enforcing CRA, the Clinton Administration set targets for low-income home ownership at the Department of Housing and Urban Development (HUD) and at government-sponsored Fannie Mae and Freddie Mac. The Federal Government had to bail out these entities when the subprime mortgages failed. These institutions were, in the words of a federal official, too large to fail. Just like the insurance giant AIG and various investment firms and banks. But a few investment firms were not too big to fail. Secretary of the Treasury Henry Paulson determined which companies lived and which died.