Reforming Community Reinvestment With Responsibility

As a candidate, Joe Biden campaigned on expanding the Community Reinvestment Act (CRA). This program, created in the late 1970s, was intended to help low-income neighborhoods get increased access to banking services they were sometimes denied due to discrimination. But tying financial goals to equitable desires has led to serious problems like the mortgage crisis late in the presidency of George W. Bush.

Richard Holt

With the Biden Administration fixated on equity, history now has the sad prospect of repeating itself. Project 21 member Rich Holt notes in a commentary syndicated by InsideSources:

While the great optimism that liberals had in trying to reconcile the sins of the past may have seemed admirable at the time, there is a formidable downside. Like all liberal ideas that come from deep in the heart — or from the jackboots of the foot — the CRA attempts to correct inequity by attacking the symptom and not the problem.

The symptom? Black Americans have been discriminated against by banks, and have had difficulty getting loans. The real problem has been a lack of blacks with the business and financial education needed to open, run and maintain businesses and cover mortgages. Instead of using the Chamber of Commerce and the existing businesses — as well as other community resources — to help train a generation of black entrepreneurs and homeowners, big government instead forced existing lending institutions to make sure a certain percentage of loans checked a quota box.

This hasn’t served anyone very well. “[S]imply creating a government mandate,” Rich writes, “didn’t yield the intended results of building on the gains of the civil rights movement and creating a new class of homeowners and entrepreneurs.”

Pointing out that the CRA fundamentally mismanages the financial marketplace, Rich remarks that “forcing quotas on banks doesn’t encourage them to offer loans to those they shouldn’t have discriminated against in the first place.” He adds:

Racial quotas attack the symptom, not the problem — which is why it’s necessary to create a culture of entrepreneurship in the black community.

To reform the CRA, Rich suggests investors need to understand their responsibilities and the consequences of their action (or inaction). This includes financial literacy training for novice investors. The goal, of course, is making sure these investors succeed by not losing their homes or businesses because they don’t understand the seriousness of the system. This is the lesson of the housing bubble.

But Rich is not optimistic.

“The Biden Administration has the power to embrace real solutions to the problem,” Rich notes. “But it’s likely it will do what liberals do best: ‘Do what I say, or I’ll kill your business.’”

Rich’s commentary has appeared in papers including the North Andover Eagle-Tribune, Marietta Daily Journal, Finger Lakes Times and Rome News Tribune. InsideSources syndicates to almost 300 newspapers nationwide with a readership of over 25 million people.

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