“Effectively, in the pursuit of larger pools of funds with which to facilitate the type of investments characteristic of modern technology, Lindsey doesn’t get why small independent banks are necessary to preserve wealth in the housing market..”
If you’re saying that the CRA inherently limits the ability of small independents to use their best judgement in how they make loans I’d agree with you. But I don’t recall Lindsey saying anything in particular about small independent banks.
“Most bankers of his ilk have little faith in the discernment and ability of local investors. “
Well he’s not a banker, he’s an economist. He worked for Reagan and both Bushes. He taught at Harvard. He worked for the Federal Reserve Board. He probably needs some experience as a small banker. If he had to worry about the safety of his own capital he might gain some appreciation for the problems created by do-gooder legislation like the CRA.
The whole idea of the CRA was to use the threat of rejection of an application for a merger as an enforcement tool. Mergers enlarge capital pools to mitigate the risks of large investments. The ultimate capital is when risks are socialized. Large banks whine that they need mergers to stay competitive with European and Japanese banks. That is because of the huge concentrations of capital required to fund modern projects. The bank has to be of sufficient size to maintain reserves and spread risks. So effectively, we have a financial battle among nations with the key weapon being the ability to socialize risks.
So, what did the left do? They used that leverage for social purposes with the goal of chasing increasing risk. The bankers were perfectly happy to play because Uncle Sugar owned the risk. That allowed them to build a huge market of securities with which their banker friends got to play, effectively risk free. When it all blew up, they came running with their claim tickets whining about the government forcing them to make bad loans. Small banks collapsed and big banks got them. Voila! CRA allowed only the biggest banks to get bigger. A typical corporate leftist ruse.
As you and I both know, the fundamental problem with the whole game is that capital was not directed to its most profitable use, cost of risk included. Instead they socialized risk, unitized all borrowers as if they were the same. RINOcrats were overjoyed with the idea that home-ownership would elevate the working class into a more responsible lifestyle because of their stake in the investment. Republicans dreamed that once they start paying property taxes, they might even become Republicans! Little did they know that Soros et al. were going to kill their marginal cash flow by inflating the cost of fuel via speculation. People will defer their house payment for the gas to get to work.