Mandatory Loans ....

A fellow named Barak posted an interesting article at 24hourcampfire.com called The Federal Reserve's Self-Imposed Dilemma - Gary North. (Barak listed the source.)

watch4bear, another member at 24hourcampfire made this comment about the article: "...Mandatory loans to unqualified borrowers, with zero collateral, and waived mortgage insurance, busted the bank. Ours, and other investing countries. Those responsible should be tried before the world court for collusion, and intent to defraud."

It was that phrase, "Mandatory loans" that started me off on this tangent - my quest for National Economic Understanding. Who was responsible for making bank loans mandatory? What an outrageous notion! Watch4bear pointed me in the right direction - the Gramm-Leach-Bliley Act.

The GLBA, enacted November 12, 1999, repealed part of an old law that prohibited a bank from offering investment,commercial banking, and insurance services all under one roof, so to speak. The GLBA made this legal again, and is how conglomerations like Citigroup (Citybank and Traveler's) are able to operate legally.

But the GLBA is beside the point when it comes to "mandatory loans", so I waded through the Wikipedia stuff and found exactly what I was looking for. I posted it on Barak's thread:

"Crucial to the passing of this Act was an amendment made to the GLBA, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory" rating at its most recent CRA [Community Reinvestment Act] exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the Community Reinvestment Act (CRA).

This was an issue of hot contention, and the Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements."

So this story really has nothing to do with the GLBA, and everything to do with the Community Reinvestment Act.