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Sorry. I ought to have been more specific. I was referring to making a law that made it compulsory to lend to an individual even if it was clear from assessing

by Zuider 10y ago

Sorry. I ought to have been more specific. I was referring to making a law that made it compulsory to lend to an individual even if it was clear from assessing that particular individual that their likelihood of defaulting was unacceptably high.

nickles 10y ago
That's precisely what caused the financial crisis of 2008. The Community Reinvestment Act (passed 1977, expanded in 1992 and 2002) led to severely reduced lending standards that brought about the failure of the financial system. Legislation along the lines of what you propose leads to systemic failure. The mechanisms for providing credit to risky individuals are unsavory (collateralized - pawn shops, uncollateralized - payday loans), but they adequately compensate for the risk associated with making the loans. A cursory search yielded http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6 http://www.businessinsider.com/the-cra-debate-a-users-guide-...
- prodigal_erik 10y ago
  >At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of "affordable" mortgages. That is a complete explanation in itself and it was not caused by the CRA legislation (it merely shared the same motivation). When you let mortgage brokers offload all the risk from writing stupid loans, you have altered all their incentives.
  - deleted 10y ago
    [deleted]
- Zuider 10y ago
  I was not proposing such legislation, but condemning it on the grounds that such laws amounted to social engineering, an overreach that preempted and violated individual decision making. I am well aware of the inevitable consequences of such a law. I was criticizing the position stated in the top comment of this thread which stated: >There is a large and (warranted) initiative to bank minorities and other disadvantaged communities. Until the government created huge incentives to do this it didn't happen.
  - nickles 10y ago
    I read your comment in isolation and misinterpeted it, but thanks for providing the context. The government absolutely overstepped its mandate with such laws. I think it's important to distinguish between all banking services and credit facilities. I feel as though improving access to banking services in otherwise under-banked groups is an important initiative. ~30% of Americans do not have access to a savings account. Ensuring that all communities have access to these basic services would likely be beneficial to individuals and the economy. However, access to credit should be decoupled from such considerations.
bmmayer1 10y ago
It should never be a law to compulsory lend money to anyone. Aside from being morally reprehensible, such a law would almost certainly be met with either A) widespread noncompliance or B) widespread closure of lending institutions.
- Zuider 10y ago
  I agree that it is wholly immoral to make such a law, yet it was done and led to the subprime mortgage crisis. Others on this thread have supported this law on the grounds of social justice, despite the consequences being inevitable, obvious, and harmful.

by Zuider 10y ago

nickles 10y ago

That's precisely what caused the financial crisis of 2008. The Community Reinvestment Act (passed 1977, expanded in 1992 and 2002) led to severely reduced lending standards that brought about the failure of the financial system. Legislation along the lines of what you propose leads to systemic failure. The mechanisms for providing credit to risky individuals are unsavory (collateralized - pawn shops, uncollateralized - payday loans), but they adequately compensate for the risk associated with making the loans. A cursory search yielded http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6 http://www.businessinsider.com/the-cra-debate-a-users-guide-...

prodigal_erik 10y ago
>At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of "affordable" mortgages. That is a complete explanation in itself and it was not caused by the CRA legislation (it merely shared the same motivation). When you let mortgage brokers offload all the risk from writing stupid loans, you have altered all their incentives.
- deleted 10y ago
  [deleted]
Zuider 10y ago
I was not proposing such legislation, but condemning it on the grounds that such laws amounted to social engineering, an overreach that preempted and violated individual decision making. I am well aware of the inevitable consequences of such a law. I was criticizing the position stated in the top comment of this thread which stated: >There is a large and (warranted) initiative to bank minorities and other disadvantaged communities. Until the government created huge incentives to do this it didn't happen.
- nickles 10y ago
  I read your comment in isolation and misinterpeted it, but thanks for providing the context. The government absolutely overstepped its mandate with such laws. I think it's important to distinguish between all banking services and credit facilities. I feel as though improving access to banking services in otherwise under-banked groups is an important initiative. ~30% of Americans do not have access to a savings account. Ensuring that all communities have access to these basic services would likely be beneficial to individuals and the economy. However, access to credit should be decoupled from such considerations.

bmmayer1 10y ago

It should never be a law to compulsory lend money to anyone. Aside from being morally reprehensible, such a law would almost certainly be met with either A) widespread noncompliance or B) widespread closure of lending institutions.

Zuider 10y ago
I agree that it is wholly immoral to make such a law, yet it was done and led to the subprime mortgage crisis. Others on this thread have supported this law on the grounds of social justice, despite the consequences being inevitable, obvious, and harmful.