On Mon, Oct 27, 2008 at 12:29 PM, erik mattheis <zero at gozz.com> wrote: > On Mon, Oct 27, 2008 at 11:00 AM, Matt Warden <mwarden at gmail.com> wrote: > >> The claim by the Fed and some members of Congress is that these loans >> were both safe and profitable. If that were true, why did we need the >> legislation? > > > Before the CRA, it was legal for banks to not consider issuing loans to > people who lived in certain geographic areas. Banks would have maps > (literally) with "no loans here" areas marked off on them. If someone same > in asking for a loan with a "wrong" address, tough luck. > > The CRA stopped this practice of arbitrary discrimination. Ok, we're getting somewhere. Why did the banks have these maps? Do you disagree that it's related to risk? Then, if the CRA ended this practice, how can you possibly say that the CRA did not result in increased risk? Whether these maps are "right" or "wrong" is not the question; the question is whether the CRA and other regulation increased the risk taken on by banks. I don't see how I could conclude that the answer is "no." Again, unless the bank industry was just ignorant, it is not possible that both of these are true: 1) loans encouraged by the CRA are safe and profitable 2) the CRA was necessary for banks to take on these loans I have a hard time believing that there was a profitable untapped market that escaped the eyes of hundreds of highly paid bank employees and consultants who do such market analysis for a living, but a few hundred politicians in Washington recognized it and decided to push the banks in that direction by passing the CRA. -- Matt Warden Cincinnati, OH, USA http://mattwarden.com This email proudly and graciously contributes to entropy.