the Future of Change

Since its passage in 1977, the Community Reinvestment Act (CRA) has charged federal bank regulators with “encourag[ing]” certain financial institutions “to help meet the credit needs of the local communities in which they are chartered consistent with [] safe and sound” banking practices.  Even before the CRA became law—and ever since—it has become a flashpoint.  Depending on your perspective, this simple and somewhat soft directive has led some to charge that it imposes unfair burdens on financial institutions and helped to fuel the subprime mortgage crisis of 2007 and the financial crisis that followed.  According to this argument, the CRA forced banks to make risky loans to less-than creditworthy borrowers.  Others defend the CRA, arguing that it had little to do with the riskiest subprime lending at the heart of the crisis.

Research into the relationship between the mortgage crisis and the CRA generally vindicates those in the camp that believe the CRA had little to do with the risky lending that fueled these crises.  At the same time, recent research by the National Bureau of Economic Research attempts to show that the CRA led to riskier lending, particularly in the period 2004-2006, when the mortgage market was overheated.

My most recent paper reviews this and other existing research on the subject of the impact of the CRA on subprime lending to assess the role the CRA played in the mortgage crisis of 2007 and the financial crisis that followed.  This paper also takes the analysis a step further, and asks what role the CRA played in failing to prevent these crises, particularly their impact on low- and moderate-income communities: i.e., the very communities the law was designed to protect.  Based on a review of the best existing evidence, the initial verdict of not guilty—that the CRA did not cause the financial crisis, as some argue—still holds up on appeal.  At the same time, as more fully described in this work, an appreciation for the weaknesses inherent in the law’s structure, when combined with an understanding of the manner in which it was enforced by regulators, lead one to a different conclusion; although the CRA did not cause the crisis, it failed to prevent the very harms it was designed to prevent from befalling the very communities it is supposed to protect.

The defects in the CRA that emerge from this review, in total, suggest not that the CRA was too strong, but, rather, too weak.  In the end, with many gaps in coverage and regulators unwilling to enforce its terms, the CRA proved to be a financial Maginot Line: lightly defended, easily circumvented, and quickly overrun.

The law’s shortcomings also point to important reforms that should be put in place to strengthen and fine-tune it to so that it can meet its important goal: ensuring that financial institutions meet the needs of low- and moderate-income communities, communities for which access to capital and banking services on fair terms is a necessary condition for economic development, let alone economic survival.  Such reforms could include: (1) expanding its scope to cover more financial institutions (the overwhelming majority of subprime lending took place beyond the scope of the CRA, and thus the law was powerless to prevent it); creating a private right of action so that community members and public litigants, like state attorneys general, could enforce the law in the courts; and using the CRA to apply more pressure on banks to modify underwater mortgages.  Although some of these reforms will take legislative action, and its unlike Congress, given its current makeup, would approve them.  Regulators could take action on underwater mortgages right now, without Congressional intervention.

The U.S. Constitution has a fickle relationship with innovation and technological change.  Do we freeze the constitution in 1787, and accept the understanding of key phrases like “cruel and unusual punishment” and “unreasonable searches and seizures” as they were interpreted by the Founders, or do we accept that technology and innovation can transform the very meaning of these terms?   Should the Second Amendment, which provides that “[a] well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed,” adapt with the times or is it protected behind 200-year-old protective glass?

It seems that in every recent term, the Supreme Court has weighed the reach of 4^th Amendment privacy protections in the face of modern technology.  For example, the Court ruled recently on the constitutionality of the use of GPS technology to track a suspect, finding such efforts violated the Constitution.  Were the Founders’ contemplating the advent of such technology when they protected citizens’ personal effects and letters from unwarranted government intrusion?  In terms of cruel and unusual punishment, the Court is often asked to weigh tweaks to the means of carrying out the death penalty against this clause, and yet we are not stuck with colonial notions of the phrase.  Indeed, the Court found, over 100 years ago, that this clause is “progressive” in nature, “and is not fastened to the obsolete, but may acquire meaning as public opinion becomes enlightened by a humane justice.”  For this reason, the Justices are often asked to review the nature of different punishments and the technologies that carry them out.  When ruling on their constitutionality, the Court will often then assess whether a national consensus has evolved and coalesced around prohibiting those practices.

The relationship between the Constitution and technological innovation does not always take over 200 years to play out, however.  Forty years ago this January, the Supreme Court found a right to abortion within the right to privacy.  Will advances in neuroscience threaten the intellectual foundation of the opinion in Roe v. Wade that recognized that right?

Similarly, technology is also creeping up on the Second Amendment.  The Supreme Court has said that the right to bear “arms” goes well beyond the right as it might have been conceived in 1787: i.e., to maintain a muzzle-loaded musket to deploy in support of the local militia.  Indeed, the Court, as recently as 2008, found that the Second Amendment necessarily encompasses a broader right: the right to protect one’s home with a firearm.   The Court struck down certain restrictions that infringed upon that right: like a ban on handguns in the home, and a requirement that any weapons in possession have trigger locks or that they be maintained in the home disassembled.  Because these restrictions hampered the right found at the heart of the constitutional protection, the Court found them wanting.

At the same time, the Court found that sensible restrictions that do not impair the fundamental right to protect one’s home raise no constitutional concerns.  Governments can license firearms and prohibit those with psychiatric disabilities from possessing such weapons without running afoul of the Second Amendment.  The operative language from Justice Scalia’s majority opinion is as follows:

Like most rights, the right secured by the Second Amendment is not unlimited.  From Blackstone through the 19th-century cases, commentators and courts routinely explained that the right was not a right to keep and carry any weapon whatsoever in any manner whatsoever and for whatever purpose…For example, the majority of the 19th-century courts to consider the question held that prohibitions on carrying concealed weapons were lawful under the Second Amendment or state analogues…Although we do not undertake an exhaustive historical analysis today of the full scope of the Second Amendment, nothing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms.

In other words, as long as the right to protect one’s home in a meaningful way is preserved, the right to bear arms is honored.

If this is the essence of the right, then technology that prevents the unauthorized use of a firearm, yet makes it readily available for the protection of the home, would raise no constitutional concerns.  What is needed, then, is research that can adapt smart technology—like fingerprint scanners—to use in firearms.  In a recent piece on the Huffington Post, I explore this issue in greater detail.

In a post on Huffington Post yesterday, I wrote about my impressions of Sandy from my perch in Albany, giving great credit to my social media network for keeping me apprised of developments throughout New York City as the storm raged.  Here’s an excerpt:

…for one night, the traditional journalistic techniques were of no use against Sandy’s fury. Rather, thousands upon thousands of micro-documentarists took to their windows, the streets, and the internet to track Sandy’s paces and share them with the world. The pointillist vision crafted by many hands offered not just a sense of the events as they transpired, but also of the emotion — the fear, the determination, and even the wonder — shared by those in the midst of the catastrophe. Tweeted pictures from mobile phones flew over the ether; Facebook posts kept everyone informed and connected, even as the power and light faded; and common sense punditry prevailed. Just as Clay Shirky tells us, the barriers to entry were down, and everyone had a thought, a vision, an idea and a prognosis. And there was time for humor too. Images of the Stay Puft Marshmallow Man descending on Manhattan, resurrected from his gory, cinematic death, circulated in sardonic cheer.

While we had to deal with imposters and posers creating stories of the storm, I never doubted that my circle of friends and informants were true and real and speaking from the heart, sharing what was before their very eyes. And while traditional journalism may not be dead, for one night, I was grateful for my friends, and their friends, and their friends-of-friends, to keep me close, in touch, and in tune with the true heartbeat of the city, something a newscast has never done.

Read the whole post HERE.

The legend of Paul Revere’s famous ride is one about the limits, and reach, of communications technology to advance social movements.  The tower of the North Church, the highest building in the area, could be seen for miles around.  Revere could travel relatively quickly on horseback to communicate his message of warning to neighboring towns, one by one.  Local farmers could travel short distances to muster and confront the forces of tyranny.  The story of their confrontation with British forces, “the shot heard round the world,” was communicated by an active and rebellious press sharing information with a colonial populace thirsty for information and dependent on the media for breaking news of the nascent uprising.  Although parts of the Revere story are considered apocryphal, the lesson remains: the reach and limits of communications strategies can have profound impacts on the ability of communities to work together to advance social change.

Today, as in critical times in U.S. history, innovations in communications are not only altering, but are altered by, those who put such innovations to use.  Rapid technological change is radically shaping how we interact; with whom we communicate; and the influence individuals and groups can have on each other, their communities and the wider world.  Twitter and Facebook are used to spur protests that confront dictators; share information about and mobilize market forces to rein in disfavored conduct by large, multinational corporations; and spread examples revealing the overreach of elected officials, media moguls and high profile elites.  Mobile technologies empower professional and amateur journalists to capture human rights atrocities digitally and instantly transmit images of such acts throughout the world. Web-based strategies foster the creation of virtual communities that help build trust and social capital that can span the globe.

In addition to technological innovation, social innovations—new approaches to lasting social problems—are improving the ways that humans address some of the most pressing social needs the world confronts today.  Behavioral economics and creative communications strategies can be deployed to improve market behavior.  Design thinking can be used to shape technology and its uses, as well as social programs, to conform to human behavior but also improve it.  Crowdsourcing serves as a mechanism for building more responsive markets, philanthropy and government.

In these ways, social change is itself changing.  It moves more quickly than ever before.  It responds to and incorporates many disparate voices.  It uses technological and social advances to build trust, foster community and build social capital across time and distance, despite the fact that millennia of human interactions were founded on face-to-face communications.

At a time of growing economic and social inequality, when technology itself may be one source of that inequality, technological and social innovation can serve to promote community-building, social capital and collective action that can reduce growing economic and social divides.

This blog is, in essence, about social change, and how such change happens in the 21^st Century: i.e., through both technological and social innovation.  In it, I will attempt to highlight the ways that creativity—both technological and social—is being harnessed to support social movements, promote positive social outcomes, reduce inequality and foster community.  In particular, this blog will explore how the ability to combine new tools and techniques with old-fashioned notions of trust and social capital is at the essence of social change in a rapidly changing world.