The $100,000 blogger bet on the housing bubble

Words have been flying on the politically charged topic of the role the Community Re-investment Act, a law passed in the 1970s to encourage bank lending to low-income borrowers, had in creating the housing bubble. But unlike your typical debate in the blogosphere, this carries more than just links -- the winner could take home $100,000.

It started with John Carney, managing editor at Clusterstock, who said the CRA encouraged lax lending standards. Felix Salmon at Reuters weighed in, expressing confusion that Carney would target the CRA when most subprime loans were actually made by non-banks that weren't subject to the law. Barry Ritholtz, author of Bailout Nation, a book about the causes of the current crisis, doesn't think the CRA was to blame, either. After a few days of online sparring, Ritholtz, who also authors the blog, The Big Picture, challenged Carney to a debate, with money on the line -- and that's where things get even more interesting.

Both Carney and Ritholtz are law school graduates. That means a debate between the two could potentially outlast your typical reality TV series. But there's also the important matter of establishing a jury. If Carney is going to "try" the CRA for being guilty, will he have to show a "preponderance of the evidence" or prove his case "beyond a reasonable doubt" (a higher standard) to win? Given the chain of causation in the housing crisis, I believe that given the latter criteria, it would be impossible for Carney to win.

There's also the matter of what Carney is trying to prove. His articles focus on the connection between the CRA, which encouraged loans to be given to people who wouldn't traditionally receive them, and lowered lending standards at banks.

But there are other issues at play, including low interest rates, regulatory and ratings agency ineptitude, and booming securitization. These factors no doubt contributed to the overall rise in home prices as well. As much as I don't want to disqualify myself from being a potential juror, I think Carney's case has much longer odds than he portrays it as having.

As with any financial debate, there's always the matter of money. Specifically, Carney says he doesn't have $100,000 to wager and is looking for someone to back him. But the $100,000 figure given by Ritholtz was at the top of a range that started at $10,000.

If John Carney is so certain he will win this debate, why won't he offer to put up at least the minimum?

James Cullen thinks Tony Reali's mute button will be needed to have a good debate. He also edits and writes at

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