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October 15, 2008 Does the New York Times Understand Economics?The New York Times, as is their wont, tries to whitewash Democratic responsibility for the housing disaster in today's editorial "Misplaced Blame" by holding that the Community Reinvestment Act is blameless for the problems that beset America. The Community Reinvestment Act was signed into law by Jimmy Carter in 1977. The Times editorial states that it is hard to fathom how a law signed 30 years ago is ceratinly partly (if not mostly) responsible for the crisis we have now. Well, first of all, the Act was made more potent when Bill Clinton, in 1999, beefed up its provisions and enforceability so the thirty -year statue of limitations that the Times creates out of thin air is not applicable. Secondly, does the Times understand economics? When housing prices are in a bubble, as they have been for many, years-problems do not surface immediately. Increased housing values protected unqualified homebuyers from their own mistakes. Low interest rates also helped protect mortgages from defaulting. However, economics changed. Housing prices went into a free fall, money supply constricted, interest rates increased. These conditions would not have caused the harm that they did had there been an adequate cushion (a big downpayment) or qualified borrowers who could fulfill their obligations. These were not requirements imposed on home purchasers by the Community Reinvestment Act. The root of this problem-or at least one of the main roots-was the Community Reinvestment Act and the proliferation of purchases of homes by people who could not afford them if conditions changed. The Times skirts one of the major causes of the crisis - the Democratic push for Fannie Mae and Freddie Mac to lower the standards of mortgages they would guarantee and market. The banks, savings and loans, the mortgage brokers, would not have been able to market these products without Fannie Mae and Freddie Mac's backing. The Times did not look at its own archives. A 1999 article pinpointed this risk when reporting on Democratic efforts to loosen Fannie Mae and Freddie Mac standards. |
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