Tag Archives: community reinvestment act

The latest failed effort to blame the Community Reinvestment Act for Accounting Control Fraud

By William K. Black
(Cross posted at Benzinga.com)

Introduction

The latest effort to blame the Community Reinvestment Act (CRA) for the epidemic of accounting control fraud that drove the crisis is an econometric study by Sumit Agarwal, Efraim Benmelech, Nittai Bergman, and Amit Seru (“the authors”) (“ABBS 2012”).  The study does not prove its thesis.  The fact that the authors claim it proves causality makes obvious their controlling biases.  Their title is “Did the Community Reinvestment Act (CRA) Lead to Risky Lending?”  Their abstract answers: “Yes, it did.”  They claim that their econometric study proves causality – which is impossible given their methodology.  The authors were taught from their freshman years that an econometric study of this nature could not prove causality.  Errors this basic and embarrassing demonstrate the crippling grip of the authors’ biases.

Continue reading