The Real Culprits In This Meltdown

[GaryC 7]

The Real Culprits In This Meltdown

By INVESTOR'S BUSINESS DAILY | Posted Monday, September 15, 2008 4:20 PM PT

Big Government: Barack Obama and Democrats blame the historic financial turmoil on the market. But if it's dysfunctional, Democrats during the Clinton years are a prime reason for it.

Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the "trickle-down" economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

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."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today's nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

And the worst is far from over. By the time it is, we'll all be paying for Clinton's social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets. In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.

There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road.

But the government-can-do-no-wrong crowd just doesn't get it. They won't acknowledge the law of unintended consequences from well-meaning, if misguided, acts.

Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.

http://ibdeditorial.com/IBDArticles.aspx?id=306370789279709

[one...two...tree 2,762]

Classic counter argument...blame Clinton.

It's called the Community Reinvestment Act ...great research by that writer of that piece.

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.

....

(Here's Clinton's hand in the CRA...)

The Clinton Administration's regulatory revisions ^[1] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997. ^[2]

.....

(but here's what the writer of the OP misses entirely...and conveniently:)

Changes of September 2005

Among banks and the regulatory agencies, there was a consensus that data collection, recordkeeping, and reporting requirements imposed a heavy burden on small community institutions. As a result of a 2002 review of the CRA regulations, and revision of an initial Federal Deposit Insurance Corporation (FDIC) proposal following a public commenting period that was largely negative, the FDIC, Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB), made substantive changes to the implementation of regulations for the CRA for banks (not thrifts).

Previously, all institutions over $250 million in assets were subject to a three-part CRA test that covered lending (including community development loans), qualified investments, and services (including community development services) to their assessment areas. Institutions less than $250 million were subject only to a lending test.

However, as of September 1, 2005, only those institutions with more than $1 billion in assets were subject to the three-part test. Institutions below $250 million remain subject to only a lending test, and a new CRA test was created for institutions with assets between $250 million and $1 billion. This latter category, referred to as Intermediate Small Banks, is subject to the same lending test to which institutions under $250 million were subject; along with a new combined community development test that covers community development loans, qualified investments, and community development services. The $250 million and $1 billion asset thresholds also were indexed to the consumer price index and could change annually. Thus, all institutions remain subject to the CRA test. These substantive changes were intended to be a compromise between changes advocated by banks and community groups.

However, the changes were not received positively by all community groups. Changes to tests conducted on the Intermediate Small category were viewed by some as decreasing the institutions' obligations to meet lending requirements of low- and moderate-income households. Racial inequities in mortgage acceptance rates (as reported by Inner City Press, the National Community Reinvestment Coalition, ACORN and other groups) are cited as a primary reason to maintain or even increase the scope of the CRA.

Criticism

Critics claim that government policy encouraged the development of the subprime debacle through legislation like the CRA, which in effect forces banks to lend to the same otherwise uncreditworthy consumers they are now being criticized for accepting.^[3][4]Defenders of CRA disagree, pointing out that half of all subprime loans were made by institutions that are not subject to CRA and another substantial share of subprime loans were made by subsidiaries of banks that do not fully come under CRA. They estimate that the substantial number of riskier loans banks were forced to accept by CRA were not enough to be a problem.^[5]

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

.....

Nice of the writer to pass the buck onto Clinton but this crisis started after other people's hands reshaped the CRA, and those changes were a deregulation.

Thanks for playing, Gary.

[GaryC 7]

Nice try at wiggling out of responsibility. However you slice it the mortgage crisis and the resulting credit crisis can be directly laid at Clintons feet. Clinton started a ticking time bomb that just went off. No way around that at all.

[one...two...tree 2,762]

Nice try at wiggling out of responsibility. However you slice it the mortgage crisis and the resulting credit crisis can be directly laid at Clintons feet. Clinton started a ticking time bomb that just went off. No way around that at all.

The CRA went into effect back in 1977 and Clinton revised it in 1995 with provision to have it up for review in 2002. It is during 2005, under the Bush Administration where changes in the regulations made it so that any institution with less than $250 million would be deregulated. The CRA was not originally intended to give loans to high risk lenders, but to ensure that people of all income levels be able to borrow money if they could prove credit worthiness. The changes made to the CRA in 2005 opened it up for predatory lenders to qualify loans under the CRA that should not have been.

How many lower income families that bought homes under the CRA defaulted on their loans between 1995 when Clinton made revisions to it, and 2005?

How many people have defaulted on home loans since the Bush Administration deregulated the CRA in 2005?

Therein lies your answer.

Thanks for playing, Gary.

Edited September 17, 2008 by Jabberwocky

[one...two...tree 2,762]

Zing, zing, zing!

October 19, 2004

FDIC Proposes Rule Watering Down Community Reinvestment Act Requirements

...the Federal Deposit Insurance Corporation (FDIC) under the Bush Administration has proposed a relaxation of Community Reinvestment Act (CRA) requirements for banks to support small businesses in low- and middle-income communities.

The rule change applies to 879 medium-sized banks (with between $250 million and $1 billion in assets) that are currently required to offer community development loans, investments, and services to low- and middle-income communities. Under the proposed rule change, these banks would be able to choose one of these three activities to fulfill CRA requirements, which support not only small business but also affordable housing and other community development needs.

To counter this proposal's erosion of CRA, which Congress enacted in 1977 to require banks to provide credit to low- and middle-income communities where they operate, a coalition of community investment advocates has launched the SaveCRA.org website.

"The Bush Administration's move to weaken the oversight of bank lending to working-class Americans calls into serious question President Bush's promises to increase small business lending and homeownership for all Americans," said John Taylor, president and CEO of the National Community Reinvestment Coalition (NCRC).

"For poor and struggling urban and rural areas across America, the FDIC rule is a real problem," added Mark Pinsky, president and CEO of the National Community Capital Association (NCCA). NCRC and NCCA collaborated in launching the SaveCRA.org website. "We want to make sure that all people understand what is at stake and that they have a chance to speak up about it."

http://www.socialfunds.com/news/article.cgi/1549.html

[GaryC 7]

Dance all you like but you can't evade the fact that Clinton started all this.

[one...two...tree 2,762]

Dance all you like but you can't evade the fact that Clinton started all this.

If you're trying to wind me up...you'll have to do better. The facts speak for themselves, regardless of whether or not you want to accept them. This whole debacle has its roots in deregulation...even McCain is calling for more government regulation and oversight. There is no free market candidate running for president. Whoever gets elected will have one hell of a mess to clean up and less regulation isn't the medicine this economic crisis needs.

Edited September 17, 2008 by Jabberwocky

[GaryC 7]

Dance all you like but you can't evade the fact that Clinton started all this.

If you're trying to wind me up...you'll have to do better. The facts speak for themselves, regardless of whether or not you want to accept them. This whole debacle has its roots in deregulation...even McCain is calling for more government regulation and oversight. There is no free market candidate running for president. Whoever gets elected will have one hell of a mess to clean up and less regulation isn't the medicine this economic crisis needs.

I agree that McCain will have a real mess on his hands. But you just will not admitt that the root cause, the whole thing that started it, is Clinton. Without his attempts at social engineering and his cronies looting of the result none of this would have happened.

[IAMX 3,055]

[nowhereman 1]

According to the likes of GaryC the Dems are reponsible for world hunger, death, taxes, and anything else you can think of. It's the old right wing tactic of not taking responsibility for anything and blaming those liberal, no good hippies for everything. It's denial, hypocrisy and over-simplification of a complex problem all rolled into one big old #######.

Edited September 25, 2008 by nowhereman

[IAMX 3,055]

According to the likes of GaryC the Dems are reponsible for world hunger, death, taxes, and anything else you can think of. It's the old right wing tactic of not taking responsibility for anything and blaming those liberal, no good hippies for everything. It's denial, hypocrisy and over-simplification of a complex problem all rolled into one big old #######.

The funniest thing is (especially regarding Gary and his religious right wing) when two gay men have a loving relationship, it's an abomination and it's a gateway to animal sex and pedophilia. When one religious guy preaches against it and ends up having gay sex, it's merely Satan's fault, not his. Christians have a great way of not taking responsibility for anything and blaming everything else. If these extremists would just shut the hell up and mind their own business, they can keep their retarded beliefs. No harm, no foul. Still, they just don't learn.

Edited September 25, 2008 by SRVT

[one...two...tree 2,762]

According to the likes of GaryC the Dems are reponsible for world hunger, death, taxes, and anything else you can think of. It's the old right wing tactic of not taking responsibility for anything and blaming those liberal, no good hippies for everything. It's denial, hypocrisy and over-simplification of a complex problem all rolled into one big old #######.

There are some really smart Republicans in Congress - they should be owning up to the shortcomings from championing laissez-faire economics and acknowledge that they were wrong. That doesn't make their party bad or incapable of coming up with good policies or ideas....just that on the issue of government regulations and oversight - ENOUGH with the empty rhetoric that it stifles the market. Government is a necessary evil...figuratively speaking.

[nowhereman 1]

According to the likes of GaryC the Dems are reponsible for world hunger, death, taxes, and anything else you can think of. It's the old right wing tactic of not taking responsibility for anything and blaming those liberal, no good hippies for everything. It's denial, hypocrisy and over-simplification of a complex problem all rolled into one big old #######.

The funniest thing is (especially regarding Gary and his religious right wing) when two gay men have a loving relationship, it's an abomination and it's a gateway to animal sex and pedophilia. When one religious guy preaches against it and ends up having gay sex, it's merely Satan's fault, not his. Christians have a great way of not taking responsibility for anything and blaming everything else. If these extremists would just shut the hell up and mind their own business, they can keep their retarded beliefs. No harm, no foul. Still, they just don't learn.

Hey I don't agree with two men having sex either.... but two women I fully support!

There are some really smart Republicans in Congress - they should be owning up to the shortcomings from championing laissez-faire economics and acknowledge that they were wrong. That doesn't make their party bad or incapable of coming up with good policies or ideas....just that on the issue of government regulations and oversight - ENOUGH with the empty rhetoric that it stifles the market. Government is a necessary evil...figuratively speaking.

I am not saying all Republicans are ignorant or stupid... if I said that I would be just as guilty as GaryC of being a close-minded hypocrite who was so completely biased I wouldn't know the truth if it bit me in the ###. I said it before & I will say it again... the extreme right & the extreme left are responsible for the huge rift between the parties & most of the stupid decisions politicians make. There are lots of moderate Republicans/ Democrats that have a grip on reality and are at least trying to fix the problems we face.

[one...two...tree 2,762]

... the extreme right & the extreme left are responsible for the huge rift between the parties & most of the stupid decisions politicians make. There are lots of moderate Republicans/ Democrats that have a grip on reality and are at least trying to fix the problems we face.

Amen to that.