Coming from a banking perspective, what caused the subprime market was affirmative action. The gov’t forced banks to loan to low-income minorities to meet the requirements of the Community Reinvestment Act. Stupid gov’t.
Yep. And Fan and Fred holding onto a good-sized chunk of this toxic paper didn’t help one little bit, either.
You're 90% correct, but it was the extension of the CRA, with the drug overdose from Congressional Black Caucus+Hispanic Caucus in Congress, Vincente Fox, and others that created the current mess:
"Community Reinvestment Act Rules
In July['06], the Board, FDIC, and OCC approved a joint final rule to revise certain provisions of their rules implementing the Community Reinvestment Act (CRA). (Regulation BB is the Board's CRA regulation.) The revised rules are intended to reduce regulatory burden on community banks and make CRA evaluations more effective tools for encouraging banks to meet community development needs.
The final rules raise the small bank asset-size threshold from less than $250 million in assets to less than $1 billion in assets without regard to holding company affiliation. Accordingly, the new rules reduce data collection and reporting burden for "intermediate small banks" (banks with assets at least $250 million and less than $1 billion) and, at the same time, encourage these banks to engage in meaningful community development lending, investment, and services.
Under the new rules, intermediate small banks will no longer need to collect and report CRA loan data. Nevertheless, examiners will continue to evaluate bank lending activity during their CRA examinations of intermediate small banks and will disclose those results in the public evaluation. Intermediate small banks will be evaluated under two separately rated tests: (1) the small bank lending test and (2) a new, flexible community development test that includes an evaluation of community development loans, investments, and services in light of the community's needs and the bank's capacity. Satisfactory ratings are required on both tests to obtain an overall satisfactory CRA rating.
For banks of any size, the new rules expand the definition of community development to include activities that revitalize or stabilize designated disaster areas and distressed or underserved rural areas. By doing so, the agencies seek to recognize banks' community development efforts in these areas and encourage further efforts in other rural areas. The rules also clarify when a bank's (or its affiliate's) discrimination or other illegal credit practices will adversely affect an evaluation of its CRA performance. The joint final rule became effective September 1, 2005." Fed Rules
Also see the HMDA sidebar, and other articles showing the path the regulatory agencies took to bend over backwards as 'corruption enablers' at the behest of the Congressional Caucuses....