Monday, November 7, 2011

A view of CRA from 2004

Laurence Meyer provides an insightful look at the functioning of the Federal Reserve from 1996 until 2002 in his book, A Term at the Fed: An Insider's View. He was nominated by the President Clinton to the Board of Governors of the Fed, and in recounting his nomination, tells about the call he received from Joe Stiglitz (pp 14-15):
Joe ended our conversation by telling me that he didn't want to pressure me on any issues on behalf of the Clinton administration, but he did want me to know that the administration was strongly in favor of CRA.
Meyer did not know what CRA was, but Stiglitz handled the situation with diplomacy and sent him the information he needed. Meyer then tells the reader about it:
CRA stands for Community Reinvestment Act. It was passed by Congress in 1977 to remind banks that they are obligated to meet the needs of their communities, with special emphasis on meeting the needs of people in low- and moderate-income neighborhoods. Democrats love CRA because it demonstrates how the government can provide better opportunities for lower-income families. Republicans hate CRA because it represents interference by government in the operation of businesses (in this case banks.)
Meyer says that he became the Board expert on CRA and its chief cheerleader.

His book was written published in 2004, several years before the bursting of the housing bubble. One wonders how he would have written about the CRA episode if he were writing the book today.

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