The government engineered mortgage crisis begins here: The Community Reinvestment Act of 1977, which was passed by a Democrat-led Congress. Who signed this bill? President James Earl Carter (D-GA).
President Jimmy Carter
What did the Community Reinvestment Act do? Jeff Jacoby explains:
[B]anks were forced to make increasingly risky loans to borrowers who wouldn’t qualify for a mortgage under normal standards of creditworthiness. The Community Reinvestment Act, made even more stringent during the Clinton administration, trapped lenders in a Catch-22.
“If they comply,” wrote Loyola College economist Thomas DiLorenzo, “they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties . . . which can cost a large corporation like Bank of America billions of dollars.”
More on the CRA from Michelle Minton at the Competitive Enterprise Institute in D.C.
Contrary to what the Stalinist media wants you to believe, this mess originated with governmentnot Wall Street.
While Carter signed the bill, its provisions were made much more burdensome on banks under President Clinton in the mid-90s. Howard Husock at The City Journal explained in 2000:
The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks.
[...]
[U]ntil recently, the CRA didn’t matter all that much. During the seventies and eighties, CRA enforcement was perfunctory. Regulators asked banks to demonstrate that they were trying to reach their entire “assessment area” by advertising in minority-oriented newspapers or by sending their executives to serve on the boards of local community groups. The Clinton administration changed this state of affairs dramatically. Ignoring the sweeping transformation of the banking industry since the CRA was passed, the Clinton Treasury Department’s 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count.
[...]
The Clinton administration’s get-tough regulatory regime mattered so crucially because bank deregulation had set off a wave of mega-mergers . . . Regulatory approval of such mergers depended, in part, on positive CRA ratings.
Nor did all that money go solely to home buyers. Alot of it went elsewhere.
If loans that win banks good CRA ratings were going to be made anyway, and if most of those loans are profitable, should CRA, even if redundant, bother anyone? Yes: because the CRA funnels billions of investment dollars through groups that understand protest and political advocacy but not marketing or finance.
Thanks, Bill! Ignore basic economics at your, er, our own peril.
Bill Clinton
Even then, the warning signs were apparent:
[T]he pressure on banks to make CRA-related loans may be leading to foreclosures. [...] “The problem with CRA,” says an executive with a major national financial-services firm, “is that banks will simply throw money at things because they want that CRA rating.” From the banks’ point of view, CRA lending is simply a price of doing business—even if some of the mortgages must be written off.[...]
[...] “The bulk of these loans,” notes a Federal Reserve economist, “have been made during a period in which we have not experienced an economic downturn.”
And what are we experiencing now? An economic downtown.
In 2004, House Democrats (specifically Representatives Waters, Meeks, Davis, Frank, and Clay) made clear that there was nothing wrong at all with Fannie Mae/Freddie Mac. Franklin Raines, who was head of Fannie Mae from 1998-2004, and who “made $52 million of his $90 million compensation package thanks in part to fraudulent earnings statements,” was complimented during House hearings.
Franklin Raines
Besides Carter and Clinton, some will observe that Bush has been in office since 2000. Ergo, President Bush is to blame! On the contrary, Bush encouraged Congress (18 times atleast) to fix things before it was too late.
Raines was not the only executive who profiteered handsomely from Fannie Mae’s “cooked books.” Two others were Democrats Jamie Gorelick and Jim Johnson . Gorelick “took home $26.46 million in the period from 1998 to 2002 . . . [N]early $15 million came from [earnings per share] bonuses [i.e., bonuses which were triggered due to falsified earnings -- Ed.].”
Jamie Gorelick
Jim Johnson
Speaking of Johnson and Raines, both are (or were) advisers to Senator/Messiah Barack Obama (D-IL). Both Johnson and Raines received sweet mortgages through Countrywide.
And then there are the members of Congress, who also benefited nicely from Fannie Mae and Freddie Mac. Seven of the top 10 donation recipients were (guess) members of the Democrat Party.
In his short time in office, Senator Barack Obama (D-Illinois) is already the #3 recipient.
More on Senator Dodd (D-CN), Representative Frank (D-MA), Jim Johnson, and Franklin Raines:
McCauley’s World: The Fannie Mae Five — Five Key Players Who Broke The System
Perhaps this is an obvious observation, but one ought not to expect the media to fully explain the cause of any of this. Why? Because Democrats have their fingerprints all over this crisis.
Bloomberg: How the Democrats Created the Financial Crisis by Kevin Hassett
[W]e now know that many of the senators who protected Fannie[Mae and Freddie[Mac], including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.
[...] Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.
Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.
[...] Senator John McCain was one of the three co-sponsors of S.190, the bill that would have averted this mess.
But like President Bush, John McCain was ignored.
Filed under: Barack Obama / The Messiah, John McCain/Sarah Palin, The Government Engineered Mortgage Crisis , AIG, banks, Barack Obama / The Messiah, Barney Frank, Bear Stearns, Bill Clinton, Chris Dodd, class envy, Community Reinvestment Act of 1977, Congress, economic ignorance, Fannie Mae, Franklin Raines, Freddie Mac, Hillary Clinton, Jamie Gorelick, Jim Johnson, Jimmy Carter, liberal ignorance, minorities, mortgages, race card, The Government Engineered Mortgage Crisis, vote buying
