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458 Dissenting Statement

major participant in the market was not in it for profi t and was not worried about
the risks to itself or to those it was controlling. It was the U.S. government, pursuing
a social policy—increasing homeownership by making mortgage credit available
to low and moderate income borrowers—and requiring the agencies and fi nancial
institutions it controlled or could infl uence through regulation to keep pumping
money into housing long aft er the bubble, left to itself, would have defl ated.
Economists have been vigorously debating whether the Fed’s monetary policy
in the early 2000s caused the bubble by keeping interest rates too low for too long.
Naturally enough, Ben Bernanke and Alan Greenspan have argued that the Fed was
not at fault. On the other hand, John Taylor, author of the Taylor rule, contends
that the Fed’s violation of the Taylor rule was the principal cause of the bubble.
Raghuram Rajan, a professor at the Chicago Booth School of Business, argues that
the Fed’s low interest rates caused the bubble, but that the Fed actually followed this
19
policy in order to combat unemployment rather than defl ation. Other theories
blame huge infl ows of funds from emerging markets or from countries that were
recycling the dollars they received from trade surpluses with the U.S. Th ese debates,
however, may be missing the point. It doesn’t matter where the funds that built the
bubble actually originated; the important question is why they were transformed
into the NTMs that were prone to failure as soon as the great bubble defl ated.
Figure 2 illustrates clearly that the 1997-2007 bubble was built on a foundation
of 27 million subprime and Alt-A mortgages and shows the relationship between the
cumulative growth in the dollar amount of NTMs and the growth of the bubble over
time. It includes both GSE and CRA contributions to the number of outstanding
20
NTMs above the normal baseline of 30 percent, and estimated CRA lending under
the merger-related commitments of the four large banks—Bank of America, Wells
Fargo, Citibank and JPMorgan Chase—that, with their predecessors, made most of
the commitments. As noted above, these commitments were made in connection
with applications to federal regulators for approvals of mergers or acquisitions. Th e
21
dollar amounts involved were taken from a 2007 report by the NCRC, and adjusted
for announced loans and likely rates of lending. Th e cumulative estimated CRA

19 See, Bernanke testimony before the FCIC, September 2, 2010, Alan Greenspan, in “Th e Crisis,” Second
Draft : March 9, 2010, Taylor, in testimony before the FCIC on October 20, 2009, John B. Taylor, Getting
Off Track, Hoover Institution Press, 2009; and Raghuram Rajan, Fault Lines: How Hidden Fractures Still
Th reaten the World Economy, Princeton University Press, 2010, pp. 108-110.
20 It appears that the GSEs’ normal intake of mortgages included about 30 percent that were made to
borrowers who were at or below the median income in the area in which they lived and were thus eligible
for AH credit. It was only when the AH goals rose above this level, beginning in 1995, that government
policy required the GSEs to acquire more AH qualifying loans than they would have purchased as a matter
of course. In the case of the CRA contributions, the baseline is 1992, and includes the commitments
made by the four largest banks and their predecessors listed in the NCRC report, adjusted for the loans
actually announced by the banks aft er that date.
21 In 2007, the National Community Reinvestment Coalition published a report on principal amount
of CRA loans that banks had committed to make in connection with merger applications. Th e report
claimed that these commitments exceeded $4.5 trillion. Th e original report was removed from the
NCRC’s website, but can still be found at http://www.community-wealth.org/_pdfs/articles-publications/
cdfi s/report-silver-brown.pdf. A portion of these commitments were in fact fulfi lled through CRA
qualifying loans. A full discussion of these commitments and the number of loans made pursuant to
them is contained in Section III.