Whose fault?

Not the Community Reinvestment Act, despite the racism finger pointing from the Right.

Also unconvincing is the claim made by some conservatives that the Clinton Administration's 1995 Community Reinvestment Act (CRA) regulations, which pushed banks to lend in poor communities, caused the subprime mortgage lending binge that sparked the current troubles. It's certainly conceivable that Washington's long-held obsession with fostering home ownership helped fuel the housing bubble. But when the subprime lending binge really took off from 2003 to 2006, financial institutions subject to CRA weren't the ones leading the way. Neither were government-sponsored behemoths Fannie Mae and Freddie Mac.

No, starting in 2003, as a long boom in house prices and mortgage lending that had at least some foundation in economic reality (lower interest rates, higher incomes) gave way to an orgy of ever-sharper price increases fueled by ever-dodgier loans, the folks in the drivers' seat were the mortgage brokers that made the loans and the Wall Street investment banks that packaged them into private-label mortgage-backed securities.

And these people were barely regulated at all, at least not in the sense that bankers are regulated. "You had a regulatory mechanism that was targeted very narrowly to prudential regulation of the banking industry," says Gene Ludwig, who as Comptroller of the Currency oversaw the nation's big banks from 1993 to 1998. What that did, Ludwig explains, was to motivate banking companies to move activities to their less-regulated affiliates, and give a leg up to competitors (stand-alone investment firms, hedge funds, mortgage brokers, you name it) that weren't being watched by banking regulators at all.