Sep 27, 2008

Deval Patrick: A Man in Need of Blame [LINK]

As long as there is a generous surplus of outrage over implications of our current financial crisis, it may be worth spreading the blame around to deserving recipients. My governor, Deval Patrick, certainly qualifies. While in the Clinton Justice Department's Civil Rights Division, he pioneered the sort of aggressive anti-redlining measures that pressured mortgage lenders to make questionable loans to low-income borrowers. Such widespread loosening of lending standards was a major factor in the mortgage crisis, which in turn is the main reason why today we have an even wider financial crisis threatening to bring the American economy to a screeching halt.

This short post demonstrates the importance of the mortgage market's politicization to Patrick's career. Indeed, after becoming governor of Massachusetts he instituted a public mortgage-lender rating system at the state level, modeled after the Clinton-era Community Reinvestment Act whose enforcment he pioneered. As recently as May of this year, he modified the system to rate lenders' ability to assist borrowers who could no longer afford their mortgage payments. Previously, it concentrated solely on lending standards, judging, as the Boston Globe put it, "whether companies are serving lower-income communities by making loans available at fair prices."

Savor the irony. Without such a political process, these loans presumably would never have been made. The government considered this a problem in need of fixing, and went about pressuring lenders to make those loans. When it became apparent the borrowers couldn't pay them, the government again pressured lenders to relax the terms of the loans.

Was this well-intentioned policy loosening credit standards a good thing for all those people now facing foreclosure?

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