Economic Crisis: How We Got Here

Panelists at a Suffolk University discussion today on the financial crisis refuted two major points that have become articles of faith on conservative talk radio: 1) that the push started in the 1990s to open up mortgage-lending to minority groups is a primary cause of the crisis; 2) that the animating government action of the passage of the Community Reinvestment Act laid the groundwork for the disaster. (BTW, I’d post a popular video that makes those points, but it has been removed from Youtube.)

The executive vice president of the Federal Reserve Bank of Boston, Lynn E. Browne, took aim at both these items. On the question of so-called loosening of lending standards for members of minority groups, she was forceful. She referenced an early-1990s report produced by the Boston Fed that has become a cause celebre on the right.

“You want to treat people fairly,” she said, going on to refute the idea that the study promoted a lesser-standard for mortgagees. “The study showed that the same standards were not applied,” she said.

On the CRA, she pointed out something I had not heard in the media. “The bulk of the institutions that issued these loans were not covered by the Community Reinvestment Act,” she said.

Aside from Browne’s perpsective, the panel was heavy on free marketeers as most exemplified by the provocative Harvard professor, Jeffrey Miron. The event was co-sponsored by Suffolk’s Department of Economics, Beacon Hill Institute and College of Arts and Sciences.

Miron was sharply critical of the economic bailout plan. “Government’s response to this is an unmitigated disaster,” Miron said. “Government will take similar risks in the future,” he warned.

When the discussion — in response to a question about bank panics — turned to psychological need to shore up the banking system to prevent panics, the executive director of the Massachusetts Mortgage Brokers Association, Kevin Cuff tersely put the bailout plan into perspective. “That’s what the bailout was,” he said.

Finally, it was hard not to empathize with the hundreds of Suffolk students who jammed into the Walsh Theater for the talk. They were greeted grimly by Henry Kim, an Associate Professor of Economics at Suffolk University, who related a common conversation he has with prospective graduates.

I ask them ‘What do you want to do when you graduate?’ They say ‘I want to go to Wall Street and work for an investment bank.’ That answer has to change because there are no investment banks any more.

I asked one back-pack carrying student on his way out of the talk whether the crisis had affected him. “Not yet,” he said. “But it probably will.”

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