Posted on 09/20/2008 3:36:05 PM PDT by PurpleMountains
There is no one explanation of what went wrong with the financial markets. Simply put, it is a case of many people deciding that age old rules need not be followed anymore – combined with breathtaking corruption. Both political parties share some blame in some stupid things that happened, although the Democrats seem to be well in the lead as far as corruption and stupidity goes. Let’s trace some history.
(Excerpt) Read more at forthegrandchildren.blogspot.com ...
The Dem’s like to give away tax payers money! But not their own!
The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”
________________________
What a liability Slick Willy was......and continues to be, continues to be, continues to be.......
Quite a fair assessment IMHO. Thanks for the post!
1. During the Great Depression of the 1930’s, one reform that came out of the crash of 1929 was the passage of the Glass-Steagall Act, that prohibited banks from both accepting deposits and underwriting securities which led to segregation of investment banks from commercial banks. Glass-Steagall was effectively repealed for many large financial institutions by the Gramm-Leach-Bliley Act in 1999. This repeal of a time-tested wall of separation was sponsored by Senator Gramm, passed by a Republican Congress and signed by a Democrat President (Clinton).
2. Fannie Mae and Freddie Mac, agencies now known as Government Sponsored Enterprises, were also creatures of the Great Depression, and were government agencies until the late 1960’s. President Johnson, wanting to get their debts off the budget, had them privatized. Then and now, they have access to funds at below market rates, and hold or guarantee most of the home mortgages in the country.
3. Under pressure and legislation from Congress to make home mortgages more accessible to people who were not qualifying for loans, Fannie Mae and Freddie Mac began to accept and insure questionable loans and to pressure banks to provide them. Since executives of both agencies got bonuses tied to the quantity of loans granted, this added to the snowball effect. Banks also began more and more to sell off their mortgages rather than keep them in house, obviously deciding that this was a way to reduce their own risk. This pattern actually started way back in the Carter Administration, but President Clinton put it in high gear.
4. Reform efforts were hijacked by politicians either benefiting personally with favored loans, or by political contributions numbering in the hundreds of thousands of dollars. The major recipients of these benefits were Democratic Senators Chris Dodd and Barack Obama. Senator McCain can show that he received much smaller contributions – and also that he recognized and tried to do something about the storm of problems that the multiplication of these risky loans was about to unfold. In fact, Senator McCain, in 2005, co-sponsored a reform bill that was killed by the ranking Senate Banking Committee member, Senator Dodd. Unfortunately, the Republican Congress allowed this to happen.
5. With this background of a mushrooming inventory of mortgage loans that should never have been issued, a rapidly rising level of home prices attracted millions of people to buy homes on speculation for profit and buy homes they could not afford – getting these loans at favorable interest rates. As usually happens when a speculative bubble takes off, the bubble burst, and home sales and home prices went into a steep and rapid decline. A huge number of these mortgages became unsustainable for the borrowers who stopped paying or walked away from their obligations.
...
The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”
There is one reason for how this got going. The current credit crisis was brought about by the federal government through Fannie and Freddie, making bad loans to people who couldn't afford them. Then selling those bad loans to investment bankers who over extended their own line of credit.
Now the US taxpayer will have to foot the bill.
It is an excellent summary of what went wrong. I’m hoping someone in the McCain camp can figure out how to tell this story in 30 seconds and make it convincing. That is going to be a tough job.
0bama is to finish what Clinton began.
“That act was written and passed by republicans.”
Congress has been bought. All our legislation is paid for now. We are not only Byzantine in our corruption at the top, but complicit in our individual lack of responsibility and accountability. Who votes? Who’s active in the election? Who watches sports and/or sci-fi or shops or goes out or does sports rather than muddy their hands with anything on behalf of the country?
Military excepted.
That’s just an excuse. The CRA never forced any bank to make a bad loan.
Old fashioned greed by lenders and borrowers caused this crisis; by taking advantage of loose lending laws, unrealistic interest rates, and wild speculation on the value of property.
For every housing boom, there is a bust. This one just lasted so long that people forgot that.
You are, sadly, correct. The everyday Joe and Josephine will have to change their philosophy.
I don’t know when, if ever that will happen.
No GLB unless CRA was hit with dianabol and winstrol.
This is just not true.
“In 1977, Congress enacted the Community Reinvestment Act (CRA) to require banks, thrifts, and other lenders to make capital available in low- and moderate-income urban neighborhoods, thereby boosting the nation’s efforts to stabilize these declining areas. Concern over potential environmental and financial liability for cleaning up these sites has made lenders, developers, and property owners reluctant to finance redevelopment of these properties. Rather than reuse former urban industrial sites, businesses have instead moved to suburban or rural “greenfields,” which carry fewer perceived risks to development.
In January 1995, EPA announced its original Brownfields Action Agenda in response to the widespread economic development obstacles posed by urban brownfields. The (1995-1996) Brownfields Action Agenda encouraged a cooperative approach by EPA, lenders, and prospective purchasers to ease fears of financial liability and regulatory burdens. EPA has coordinated with the Office of the Comptroller of the Currency to create incentives within the CRA regulations for economic revitalization and development.
REFORM AND OPPORTUNITY
The Office of the Comptroller of the Currency revised its regulations pertaining to the CRA’s implementation in May 1995. Lenders subject to the CRA can now claim community development loan credits for loans made to help finance the environmental cleanup or redevelopment of an industrial site when it is part of an effort to revitalize the low- and moderate-income community in which the site is located.
This provision is designed to encourage economic activity in urban areas. It makes the financing of industrial property redevelopment more attractive to large lenders by providing CRA credit while aiding the communities in which they operate. Under CRA regulations, lenders’ CRA performance may be used as a basis for approving or denying activity in the banking industry.
The revised CRA regulations can be found in the May 4, 1995, Federal Register (60 FR 22156).”
This is not true. Banks that did not get with the program faced fines and other penalties.
If something like 97% of people have been making their mortgage payments on time, doesn’t that mean there is more to this debacle than just some bad home loans?
More reasons for term limits.
Not that I can find.
http://www.bos.frb.org/commdev/commaff/cra.pdf
http://www.usdoj.gov/olc/cra.htm
Kudos! You know your stuff...
;-)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.