With the Federal Reserve Board’s first meeting of 2015 last month and the upcoming 40th anniversary of Saturday Night Live, I had Mr. Peabody crank up the “Way Back Machine” and set it for April 14, 1980. If Millennials think they can’t afford to buy their first home now, mortgage interest rates back then were heading to 20%.
While today media coverage of the Federal Reserve Board is fairly prevalent, in the ‘70s the Fed was more of a shadow force only tracked by wonks. Then came Paul Volcker with his cigar and there was a new sheriff and face of the Fed in town.
But before we jump back 35 years, let’s be clear: Inflation is BAD! Was then and would be again. But the Federal Reserve has always had a dual mandate: control inflation and strive for low unemployment. Often the Fed sheriff has clearly chosen one over the other.
In early 1980, Congress passed a law that gave Paul Volcker’s Federal Reserve control over almost all lenders in the US, not just the commercial banks that were members of the Fed system. Volcker used that law to require non-interest bearing reserves resulting in rising mortgage interest rates. Guess who got hurt: millions of Americans trying to own or improve their homes and communities throughout the country.
Volcker told Congress that the Home Mortgage Disclosure Act [HMDA] passed in 1975 should be gutted. Volcker’s Fed was refusing to enforce the Community Reinvestment Act [CRA], which was passed in 1977 but only had regulations promulgated in February 1979.
On March 14, 1980, President Carter invoked the Credit Control Act of 1969 giving Paul Volcker sweeping power over how financial institutions allocated credit. So a month later, 2,000 community leaders in DC for the 9th annual conference of National Peoples Action came knocking on the Fed door.
Now younger readers may need to “google” Chevy Chase Land Shark to fully appreciate the “Jaws” theme music that goes along with the door knocking. One of the staff from the Northwest Bronx Community & Clergy Coalition had borrowed Chevy’s Land Shark head from NBC’s Saturday Night Live wardrobe for their DC visit. The shark head and the protest made NBC Nightly News.
Fifteen community leaders were finally admitted for Volker’s first meeting with the American public. Volcker’s reprise throughout the meeting was “I have no power. I’m only the chairman of the Federal Reserve.” Finally, when he said, “We only have the power to control the money supply,” a few people had to laugh. Even Volcker himself had to smile at what he had just said. Finally, he agreed to come outside and inform the crowd that he would subsequently meet again in May to discuss policy recommendations.
National Peoples Action didn’t just protest for the fun of it. They were calling for a Federal Reserve Neighborhood Credit Policy to lower interest rates for loans targeted to owner-occupied homes and multi-family properties providing affordable housing for low- and moderate-income families. Reserve requirements would be lowered for financial institutions making “reinvestment loans.” They would be allowed to borrow from the Fed at special low rates and long terms provided that the full amount of these funds were used for “reinvestment loans.”
Stop to consider the business model flaw in recent predatory lending. Lenders decide that low and moderate income families are “risky” so they charge a higher interest rate. That makes the mortgage more costly and less affordable.
Without the availability of affordable credit, community reinvestment cannot proceed. CRA requires that lenders have a “continuing and affirmative obligation to make credit available.” But unless that credit is affordable, financial institutions will not be fostering community development.
Our economy may be improving but our communities still need to be restored. Over six years ago, I posted on SHELTERFORCE’s Blog ROOFLINES: “So now besides no home, it’s no job. And this time, there is no place for Tom Joad to head to tonight.” There are too many Toms still looking.
It’s way past time to revisit a Federal Reserve Credit Policy that targets reinvesting in low- and moderate-income communities. Inflation may not be knocking on the door but income inequality is haunting our economy.
“Neighborhood people are mad that they are expected to bear the brunt of inflation while the rich are only incovenienced by having to pay a bit more for dinner in a French restaurant when they jet over to Paris for a weekend jaunt.” Gale Cincotta “Next Move” DISCLOSURE [May 1980]
Hot soup on a campfire under the bridge
Shelter line stretchin’ ’round the corner
Welcome to the new world order
Families sleepin’ in their cars in the Southwest
No home no job no peace no rest….
“Wherever there’s somebody fightin’ for a place to stand
Or decent job or a helpin’ hand
Wherever somebody’s strugglin’ to be free
Look in their eyes Mom you’ll see me.”
Well the highway is alive tonight
But nobody’s kiddin’ nobody about where it goes
I’m sittin’ down here in the campfire light
With the ghost of old Tom Joad
— Bruce Springsteen