Social Leverage: Idiology in Lending and the Sustainability Reinvestment Act of 2009

While this post harks from the radical left, in reading about the possibility that the government may take a visible role in nationalizing the banks, it occurred to me that in doing so they might gain more leverage to help spur our sustainable future.

Government ownership, if even only temporary, could provide the Obama administration the leverage it needs to help catalyze a green building revolution and to push America’s infrastructure forward from falling closer in line with the infrastructure of a Third World country.

Government oversight of our banking system could be used to co-opt lending regulations, forcing banks to earmark a certain number of dollars for green, renewable and sustainable investments.  Such a mechanism could be used as a lever in the war on inefficiency, waste and legacy infrastructure.  However doing this would still leave the “last mile” of capital allocation up to the free markets, and allow banks to seek out the most profitable investments.

While seemingly radical, the concept I have in mind would not be far from how the Community Reinvestment Act was created and is still runs today.  The CRA has helped create economic development in some of the most economically blighted parts of the United States.  Under the CRA banks are ranked and rated on the amount of money they lend within documented economic empowerment zones and other economically depressed neighborhoods.  A banks final CRA score is then tied to a number of the federal benefits they receive.  The CRA was created to force capital into areas where capital rarely flowed, offering opportunities to entrepreneurs who were willing to take risk rebuilding some of America’s most forgotten neighborhoods.

While there are some complete idiots who have tried to link the CRA to the current housing mess, their logic is flawed and their motive is pure libertarian.  The CRA has helped, although on a more limited basis than its planners may have hoped, create opportunities in areas where banks once used to never lend money.  For more detail on my argument see one of the many posts by Barry Ritholtz on the subject, one of which is here: More CRA Idiocy

A Sustainable Reinvestment Act (SRA) would more than likely set up a massive national debate.  However, as I heard stated over the weekend: “A financial crisis is a terrible thing to waste.”

Let’s think of all of the ways we can co-opt this crisis to the betterment of our country, the working population, and for consumers around the world.


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