Law doesn't require banks to make bad loans

I'm surprised that Loyola professor Thomas DiLorenzo is still writing about how the 1977 Community Reinvestment Act contributed to the"sub-prime" mortagage crisis when a simple Google search shows that idea has been repeatedly debunked ("Writers don't understand how markets work," Readers respond, March 31).

The Community Reinvestment Act requires banks to lend in the low-income neighborhoods where they take deposits. It does not require banks to make bad loans. Furthermore, University of Michigan law professor Michael Barr testified before the House Committee on Financial Services that 50 percent of subprime loans were made by mortgage service companies not subject to comprehensive federal supervision, and another 30 percent were made by affiliates of banks or thrifts that are not subject to routine supervision or examinations.

In fact, most of the sub-prime mortgages were made by mortgage brokers who made their fees up-front and gave a mortgage to anyone with a heartbeat.

If you want to blame the government, then blame the 2000 law pushed by Republicans like then-Senator Phil Gramm that ensured that credit default swaps would remain unregulated, the SEC's 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital, and their failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt (while at the same time making bets that those sub-prime mortgages would fail).

G. Byron Stover, Baltimore

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