Quote:
Originally Posted by SE1SG
"Clinton economy was setting the table for the late 2000s Great Recession."
o.m.f.g.
Are you really so brainwashed that you think a democratic president constantly battling a republican congress's impeachment efforts single handedly caused the great recession of 2008?? Seriously?? 7 YEARS LATER??? omg.
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Clinton had help in the form of Henry Cisneros, Secretary of Housing and Urban Development (HUD), and Roberta Achtenberg, disgraced former Assistant Secretary of HUD for Fair Housing and Equal Opportunity, both of whom served during the first Clinton Administration.
Achtenberg and her boss HUD Secretary Henry Cisneros believed that for the bulk of the 20th century, Dad had a job, and his compensation put food on the table, clothes on the backs of the family, and most importantly, a roof over their head.
By the latter part of the 1980s, the model seemed to have been flipped on its head. A house became the major source of a family's wealth, and Dad's job (and Mom's too) was a source to pay the mortgage -- and the magic of leverage-based housing price appreciation did its job. After all, housing prices only go up, right?
The Federal Government's fear was that those who did not own residential real estate would be left at the station while owners were on the train leading to permanent wealth.
Moreover, the Federal Government observed that those left at the station were disproportionately poor (duh) and were people-of-color (which is why the disgraced Achtenberg's section of Fair Housing and Equal Opportunity got involved.) The Federal Government saw this as a "wrong" that needed to be "righted" via federal intervention.
How did our government respond?
Beginning in 1992, under Achtenberg's leadership, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities, giving a leg-up to the poor and more specifically poor people-of-color. The original quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.
It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were
required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.
Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 (2nd Clinton Administration) under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.
27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation (Liar Loans), or required only interest payments.
Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.
The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.
As housing bubbles grow, rising prices suppress delinquencies and defaults. People who could not meet their mortgage obligations could refinance or sell, because their houses were now worth more.
Accordingly, by the mid-2000s, investors had begun to notice that securities based on subprime mortgages were producing the high yields, but not showing the large number of defaults that are usually associated with subprime loans. This triggered strong investor demand for these securities, causing the growth of the first significant private market for MBS based on subprime and other risky mortgages.
By 2008 this market consisted of about 7.8 million subprime loans, nearly one-third of the 27 million that were then outstanding.
Then the government-caused bubble popped. And the rest, as they say, is history. The Federal Government caused it -- all in the name of social engineering by the Department of Housing and Urban Development under William Jefferson Clinton.
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