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QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was

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QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 18 May 2016, 06:24
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Question Stats:

40% (04:12) correct 60% (02:35) wrong based on 5 sessions
In 1977, the Community Reinvestment Act (CRA) was passed for the purpose of reducing discriminatory credit practices in low-income neighborhoods. The act required Federal financing supervisory agencies to use their authority to encourage lending institutions to meet the credit needs of all borrowers in their communities. The CRA had little impact until 1993, when the Department of Housing and Urban Development (HUD) initiated legal proceedings against lenders who declined too many applications from minority borrowers. Some argue that, while providing equal access to credit is an important aim, pressure on lenders from HUD led to practices that later caused those same lenders to be assailed as “predatory.” In Housing Boom and Bust, economist Thomas Sowell wrote that the CRA, far from being as benign as it appeared, was based on a flawed assumption: that government officials were qualified to tell banks how to lend the money entrusted to them by depositors and investors.
Consider each of the answer choices separately and indicate all that apply.

1. It can be inferred from the passage that

  • the CRA was perceived by some as seemingly innocuous
  • HUD had the ability to affect banking practices
  • Thomas Sowell had asserted that a certain level of expertise is required to direct banks’ lending activities

[Reveal] Spoiler: OA
A,B and C

[Reveal] Spoiler: OE
Sowell wrote that the CRA was “far from being as benign as it appeared.” Thus, the CRA “appeared” benign, or “innocuous,” at least to some. The passage states that HUD exerted pressure on lenders, which led to practices that later caused those same lenders to be assailed as “predatory.” Thus, HUD had the ability to affect banking practices. Finally, Sowell argued that the idea “that government officials were qualified to tell banks how to lend” was a “flawed assumption.” If Sowell believed that the government officials were not “qualified” to advise the banks, it follows that some minimum level of expertise is necessary in order to be qualified to do so.


2. Which of the following can be inferred about discriminatory credit practices?

  • They are more common in middle-income neighborhoods than in high-income neighborhoods.
  • Legislators who voted for the CRA did so because they were opposed to such practices.
  • Critics allege that attempts to combat such practices can have unintended consequences.

[Reveal] Spoiler: OA
C
[Reveal] Spoiler: OE
The passage states that discriminatory credit practices existed in low-income neighborhoods. Do not assume that there is a linear relationship wherein such practices occur most in low-income neighborhoods, less in middle-income neighborhoods, and least in high-income neighborhoods. Maybe such practices exist only in low-income neighborhoods. The first choice is out of scope. The second choice is also out of scope— you have no way to know what legislators were thinking or feeling when they voted for the CRA. The passage does provide good proof for the third statement— since some argue that “pressure on lenders from HUD led to practices that later caused those same lenders to be assailed as ‘predatory,’” you can safely conclude that some critics think that attempts to combat discriminatory credit practices (passing the CRA and enforcing it through HUD) can have unintended consequences— in this case, replacing a lack of lending with predatory lending.


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Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 25 May 2016, 03:49
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Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 25 May 2016, 03:50
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Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 15 Aug 2017, 10:21
But,the 2nd answer (for the first question) says that "HUD had the ability to affect banking practices," the passage does not mention HUD's ability on banking system. The passage refers to CRA as having an impact on banking practices. Therefore, we can not assume that specifically HUD did that. Perhaps, another department affected the banking system. The passage points out that HUD had an impact on leaders though.
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Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 16 Aug 2017, 03:02
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boxing506 wrote:
But,the 2nd answer (for the first question) says that "HUD had the ability to affect banking practices," the passage does not mention HUD's ability on banking system. The passage refers to CRA as having an impact on banking practices. Therefore, we can not assume that specifically HUD did that. Perhaps, another department affected the banking system. The passage points out that HUD had an impact on leaders though.


The last sentence says

Quote:
that government officials were qualified to tell banks how to lend the money entrusted to them by depositors and investors.


From this it is clear that the gov officials are the members of HUD.

Hope this helps.

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Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 03 Mar 2018, 23:50
How C is the answer for first question ..it is relly cobfusing
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Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 05 Mar 2018, 14:25
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This is an inference question

Quote:
economist Thomas Sowell wrote that the CRA, far from being as benign as it appeared, was based on a flawed assumption: that government officials were qualified to tell banks how to lend the money entrusted to them by depositors and investors.



Sowell wrote that the bankers were qualified to give advice in term of money deposits or investments. This was not TRUE. They were NOT qualified indeed.

As it turns out, is TRUE that to give advice is implied to have some expertise to do that.

Hope now is clear to you.

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Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was [#permalink] New post 11 Mar 2018, 09:38
Can anyone pls explain the 2nd answer, why is it C and not B?
Re: QOTD #5 - In 1977, the Community Reinvestment Act (CRA) was   [#permalink] 11 Mar 2018, 09:38
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