What’s to blame for the 2008 financial crisis? According to Senator Elizabeth Warren, it is not low-income (sometimes called “affordable”) housing reform.

Conservative political factions have targeted low-income housing reform from the 1970s as the fundamental cause of the crisis. The Carter-era Community Reinvestment Act requires lenders to make loans in low-income communities where they also accept deposits. The law is a convenient scapegoat for those who argue liberal government housing policies are to blame for the subprime mortgage crisis.

Senator Warren responded with characteristic poise and vitriol when the Mortgage Bankers Association (MBA) recently regurgitated this argument. She was quoted by the Huffington Post, saying:

“Although Fannie and Freddie purchased securities backed by subprime loans, and some of those purchases helped fulfill their affordable housing goals, the St. Louis Fed economists found that the housing goals had no impact — no impact — on either the number of subprime loans originated or the price of those loans in the private-label market [. . .] Affordable housing goals have been scapegoated by those who have been itching to get rid of the goals for a long time, but I think it’s time to drop that red herring.”

Once again, Warren gets it right. It’s important to rebut this argument for several reasons. Of course we don’t want to go backwards when it comes to low-income housing reform. But the law is more than some sentimental liberal policy for the redistribution of wealth.

Low-income housing, especially in urban city centers, encourages jobs growth, innovation and creates conditions fertile for virtuous market cycles. For a compelling and comprehensive breakdown of how subprime lending spiraled out of control, listen here.

The St. Louis Fed report to which Senator Warren referred is here.