Memo to Occupiers: Government had big role in meltdown

November 22, 2011

Occupy Wall Street protesters need to look at a little more history when accusing the greedy banking institutions of creating the housing bubble and the global meltdown of the financial world.

The Community Reinvestment Act (CRA) regulations of 1995 required banks to demonstrate that they were making mortgage loans to underserved communities, which inevitably included borrowers whose credit standing did not qualify them for a conventional mortgage loan.

To meet this new requirement, insured banks had to reduce the quality of the mortgages they would make or acquire. As the enforcers of CRA, the regulators themselves were co-opted into this process, approving lending practices that they would otherwise have scorned. The erosion of traditional mortgage standards had begun.

As a result of this pressure to accept high-risk loans, these banks began to look for methods to reduce the risk to individual institutions, and therein lies the reason for creation of the credit swaps, bundled mortgage securities, and many more of the instruments now attributed to greedy banks and investors.

William Vail, Glen Burnie

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