While it is true that the federal government put into place regulations that encouraged banks to loan to poor or disadvantaged neighborhoods, the government did NOT FORCE banks to take up loans in general, especially sub-prime loans. Banks and other lending institutions all rushed to “get in on the act” knowing about all existing mortgage regulations. If these “evil regulations” created unacceptable risk to banks and professional lenders, why did they STILL rush to get into the act?
And why did they skimp on verification practices, such as verifying applicant income? How did the “evil government” force banks to do shoddy applicant verification? Did Uncle Sam slap their hand away from the phone when they tried to call an employer to verify income? Conservatives cannot explain these, and usually try to change the subject when pressed.
One of the smarter conservative debaters (a rare breed) suggested that lending institutions took on the risk because they believed the government indirectly “backed” the loans. Thus, if the loans went bad, they may have felt that the government would bail them out. However, the fact that Lehman Brothers and many other banks went bankrupt shows there is no significant protection.
If they somehow miscalculated this element, then it's NOT the government's fault. Most bubbles are caused by some questionable belief, and this has been happening for centuries. Investors are sometimes just plain stupid and don't seem to learn from history. Blaming government is a cop-out.
Further, there's no evidence that most bad loans were to poor or disadvantaged neighborhoods. Bad loans were given to a wide profile of society and incomes. The vast majority of subprime loans were NOT made under the CRA. The meltdown was almost entirely caused by runaway lemming greed, not regulations. The FoxNews/Rush L. machine is simply pumping out BS.
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