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Exactly and BOTH sides of the aisle were happy to support it because all those false growth numbers that Wall Street sold them made them look good, even if only temporarily.
Also, not a single bank was FORCED by any law or lawmaker to give a loan to anyone who they didn't choose to give it to. Banks and mortgage lenders were thrilled to be given cart blanche to loan money they KNEW they'd never get back.
Short term thinking for financial gain is not a D or R thing, it's a greed thing. And this country has no shortage of that top to bottom.
Never say never. Banks don't want to fight the federal government.
DOJ Begins Bank Witch Hunt - Yahoo! Finance
In several cases, the government has ordered bank defendants to post in all their branches and marketing materials a notice informing minority customers that they cannot be turned down for credit because they receive public aid, such as unemployment benefits, welfare payments or food stamps.Among other remedies: favorable interest rates and down-payment assistance for minority borrowers with weak credit.
..
The program includes originating conventional home loans at fixed prime rates for African-American borrowers "who would ordinarily not qualify for such rates for reasons including the lack of required credit quality, income or down payment.
Who came up with the crazy idea you could sell houses to people too poor to keep them? Geesh.
I don't know why these men aren't in jail.
President Bush went to Congress repeatedly for years warning them that Fannie Mae and Freddie Mac were going to destroy the economy (17 times in 2008 alone). Democrats continuously ignored him, shut down his proposals along party lines and continued raiding the institutions for campaign contributions on their way down.
A conservo publication blames the lousy economy on the democrats.
There is nothing wrong with subprime loans per se. Virtually every VA and FHA loan is subprime. The same is true with most commercial loans guaranteed by the SBA. These loans are not a problem provided that they are serviced "in house" by the bank. The problem was the unregulated "wholesale marketing" of them as debt securities. The question is whether banks should be allowed to do this. The answer is no because of the risk exposure. Allowing banks to deal in these high-risk, secret transactions is against all rules of bank accountability. (Even to this day the government does not know where all the TARP money was spent; nor has JP Morgan Chase accounted for how many billions were lost in its unauthorized trading.) There has to be a clear dividing line between banking transactions, such as mortgage loans, that are insured, and market trading, such as the sale of mortgage-backed securities, that are not; otherwise the risk of loss is placed on the government, and ultimately the taxpayer. Banks should be in the business of lending money and not speculating with depositor funds on the stock market. It's as simple as that.
There is nothing wrong with subprime loans per se. Virtually every VA and FHA loan is subprime. The same is true with most commercial loans guaranteed by the SBA. These loans are not a problem provided that they are serviced "in house" by the bank. The problem was the unregulated "wholesale marketing" of them as debt securities. The question is whether banks should be allowed to do this. The answer is no because of the risk exposure. Allowing banks to deal in these high-risk, secret transactions is against all rules of bank accountability. (Even to this day the government does not know where all the TARP money was spent; nor has JP Morgan Chase accounted for how many billions were lost in its unauthorized trading.) There has to be a clear dividing line between banking transactions, such as mortgage loans, that are insured, and market trading, such as the sale of mortgage-backed securities, that are not; otherwise the risk of loss is placed on the government, and ultimately the taxpayer. Banks should be in the business of lending money and not speculating with depositor funds on the stock market. It's as simple as that.
That's why Glass-Steagall was put in place. But that got repealed..remember ?
There's plenty wrong when the government tells you to count unemployment as money coming in to qualify for a loan. Geeze..that should be obvious to anyone.
I posted this in November 2008, a week after the election. Most people have probably forgotten about it by now.
But they shouldn't have. The history it describes, is just as true now as it was then, and just as true as when it happened over the span of the last 30 years or so.
Once we get through the obligatory "Fox News always lies" hysteria from the usual suspects, these events of the past are very much worth discussing.
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Have you seen the Special Report composed by Fox News, on the financial crisis? It's a hour-long show, and been broadcast several times. Someone has put it on YouTube, in six segments. Fox calls it "Saving Our Economy". Go to YouTube and do a search on that title, and you should get all six segments. They vary from 5 to 10 minutes each, about 45 minutes running time total (no commercials).
It's a GREAT explanation of how the crisis started, who did what, what the results were, etc. A real must-see.
Here's a summary:
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Sept. 23, 2008: Treasury Secretary Henry Paulson: "The events leading us here began many years ago, starting with bad lending practices by banks and financial institutions, and by borrowers taking up mortgages they couldn't afford."
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The Federal National Mortgage Association (FNMA, or "Fannie Mae") was created in 1938 during the Great Depression, to create a market for mortgages where they could be bought and sold.
In 1968, Lyndon Johnson and a Democratic Congress spun off Fannie Mae so that it would not show up in the Federal budget. But the Federal govt was always there, ready to bail out Fannie Mae if problems happened. This enables Fannie Mae to offer lower rates for the mortgages it bought, since it was not taking the risks that other banks and institutions had to. In 1970, the Federal Home Loan Mortgage Corporation ("Freddie Mac") was formed, to create competition for Fannie Mae, since ordinary banks could NOT compete with the government-backed rates they offered.
The Community Reinvestment Act (CRA) was passed by a Democrat Congress and signed by Jimmy Carter in 1977. It made sure banks were lending to people of all colors and income levels. But things quickly began going off the rails, as activist groups found a new weapon in the law: The could start suing lenders for discrimination if they didn't lend to enough minority families, regardless of the families' ability to pay the loans back as promised. Banks began making riskier and riskier loans for fear of having to fight expensive lawsuits.
Community groups began bullying the banks, especially one called the Association of Community Organizers for Reform Now ("ACORN"). It hired several specialized lawyers, including a young man named Barack Obama, to teach its employees how to go to the homes of bank CEOs and senior officers, harassing and publicly embarrassing them while remaining within the limits of local law to avoid prosecution. At one point, ACORN brought a lawsuit against a thrift merger in Illinois, insisting that the lending institutions had not made as many loans to minorities as ACORN thought they should. The bank replied that such loans would be financially irresponsible, and would put ALL the bank's customers at unacceptable risk. ACORN prevailed in court, and banks began making more and more risky loans to home buyers who could have never qualified for those loans under ordinary circumstances.
In late 2000, in the last days of the Clinton administration, the government ordered Fannie and Freddie to increase the numbers of these risky ("sub-prime") mortgages they were buying from banks and lending institutions across the country. They did, lowering their rates and buying more and more, until fully half their portfolios consisted of these risky sub-prime mortgages, combined and packaged in various ways.
The Bush administration raised red flags starting in April 2001. Their 2002 Budget Request declared that the size of mortgage giants Freddie Mac and Fannie Mae is "a potential problem" because financial trouble in either one of them "could cause strong repercussions in financial markets".
In 2003, the White House warning about Fannie and Freddie, was upgraded to a "Systemic Risk that could spread beyond just the housing sector".
As Fannie and Freddie continued to lower their rates and buy mortgages, lenders made more and more mortgages to buyers with questionable ability to pay, safe in the knowledge that they could immediately turn around and sell the mortgages to the government-sponsored Fannie and Freddie, thus avoiding any consequences if the loans were later defaulted. They were happy to make more and more such mortgages, collecting fees for each and selling the mortgages to F&F.
Countrywide Financial chairman Angelo Mazzillo literally started screaming at Wall Street Journal editor Paul Gigot, when Gigot asked him about the wisdom of making so many loans to buyers unlikely to pay them back. Mazzillo insisted loudly that Gigot had no idea what he was talking about, did not understand the first thing about mortgage lending, etc., etc. He failed, however, to answer any of Gigot's questions in even the simplest terms or explain why they were "wrong".
In Fall 2003, the Bush Admin was pushing Congress hard to create a new Federal agency to regulate and supervise Fannie and Freddie, both Government Sponsored Entities, or GSEs.
At a Congressional hearing on Sept 10, 2003, John Snow, Secretary of the Treasury stated: "We need a strong, world-class regulatory agency to oversee the prudential operations of the GSE's, and the safety and soundness of their financial activities."
At that same hearing, ranking member of the House Financial Services Committee Barney Frank (D-MA) defended his practices with regard to Fannie Mae and Freddie Mac: "Fannie Mae and Freddie Mac, are not in a crisis."
Frank said the Fed Govt should be encouraging F&F to do more to get low-income families into homes:
"The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up a possibility of serious financial losses to the treasury - which I do not see, I think we see entities which are fundamentally sound financially and can withstand some of the disaster scenarios - the more pressure there is there, then the less I think we see in terms of 'affordable housing' ".
The top executives at Fannie and Freddie began cooking their books, exaggerating their sales in their quarterly reports, so that the company officials could claim they had met their companies' sales targets, and thus collect huge salary bonuses. They were finally caught in 2004. Several of them stepped down, but none was ever punished, or even charged. One of them, Franklin Raines, CEO of Fannie Mae, later gave financial and housing advice to the campaign of Presidential contender Barack Obama.
At a House Financial Services Committee Hearing on Feb. 17, 2005, Alan Greenspan warned against one of the fundamental ideas of modern liberalism, the idea of putting all our eggs in one basket by concentrating financial activity into just a few big agencies in central government: "... Enabling these institutions to increase in size - and they will once the crisis in their judgment passes - we are placing the total financial system of the future at a substantial risk."
He later added at another hearing on on April 6, 2005: "If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis."
Senator Charles Schumer (D-NY) ignored any possibility the F&F might be in trouble at that hearing, and simply pointed to the advantages some people had gotten from the government's activities: "I think Fannie and Freddie ... are an intrinsic part of making America the best-housed people in the world... if you look over the last 20 or whatever years, they have done a very, very good job."
Schumer also complained, "Things are good in the housing market. Why are people entertaining radical change?"
On April 7, 2005, Treasury Secretary John Snow warned again: "These large portfolios, unchecked in their growth over the last decade or so, pose a real problem." The Senate Banking Committee adopted strong regulation that would have prevented Fannie and Freddie from acquiring these bad mortgages. All of the Republicans on the committee voted for it, and all the Democrats voted against it, and it passed out of the committee on a straight party-line vote. But Democrats then filibustered the bill on the Senate floor, preventing it from being brought to a vote.
Freddie Mac and Fannie Mae was active in making campaign contributions to politicians, from money that ostensibly was for low-income mortgages. The top two recipients were:
Christopher Dodd (D-CT): $165,000
Barack Obama (D-IL): $126,000
The highest-receiving Republican was Bob Bennett (R-UT), who got $108,000. Further down the list was John McCain (R-AZ), who accepted $25,000.
On May 25, 2006 in the Senate, John McCain (R-AZ) sounded more warnings over the huge size and lack of discipline in the government companies, and sponsored a bill to regulate the companies more firmly: "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac... and the sheer magnitude of these companies and the role they play in the housing market... the GSEs need to be reformed without delay."
McCain's bill was voted out of committee on a straight party-line vote: All Republicans voted for it, and all Democrats voted against. Democrats then announced they would filibuster the bill in the Senate, as they had the previous year's regulatory legislation. Republicans knew they did not have enough votes to achieve the 60% needed, and so never brought the bill to the Senate floor.
By the beginning of 2008, Fannie Mae and Freddie Mac had bought up over $4 trillion in mortgages, roughly one-quarter of which was risky sub-prime mortgage paper. With interest rates rising, these rickety homeowners started defaulting on their loans. Only about 2% of them defaulted by January 2008, but the effect was disastrous. Banks began to get leery of lending money to each other, knowing that their fellow banks held substantial assets that might default and become worthless, thus making the banks unable to pay back their loans to each other.
Banks and lending institutions began collapsing or seeking emergency help: Countrywide Financial, Lehman Brothers, insurer AIG, Bear Stearns, IndyMac bank, etc. buckled to their knees as paralysis spread. The huge numbers of risky subprime mortgages, had become like a "poison pill" that choked the institutions that had swallowed them. The Fed finally took over Freddie Mac and Fannie Mae, but the damage had long been done.
Congress appropriated nearly $1 trillion in emergency funds (as of Nov. 2008 - LA) to loan to, or otherwise prop up, failing financial institutions. But none of the original legislation that had spurred decades of risky lending, has been repealed in all the "bailout" frenzy, and there are no bills pending to do so.
Who came up with the crazy idea you could sell houses to people too poor to keep them? Geesh.
I don't know why these men aren't in jail.
President Bush went to Congress repeatedly for years warning them that Fannie Mae and Freddie Mac were going to destroy the economy (17 times in 2008 alone). Democrats continuously ignored him, shut down his proposals along party lines and continued raiding the institutions for campaign contributions on their way down.
Of course liberal policy has destroyed the finances of America. Let us examine the ways-
1. Fair Housing Act
2. Johnson's "Great Society" creating the modern welfare state
3. Aid to women with dependent children
4. Social security
5. Medicare
6. Medicaid
7. Social Security disability
8. NAFTA
9. China most favored nation trade status
10. refusal to enforce immigration laws
11. embracing the drug culture
12. embracing single parent families
13. ruining public education
Liberalism is a cancer on the nation which will kill the US as we know it. There is no cure.
We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often.
Five percent. Of course, that very naive cause-and-effect assumption also completely ignores the fact that about 50% of the subprime mortgages were issued by independent mortgage companies, who were not even regulated the CRA. The idea that the banks were forced to enter into subprime mortgages with a gun to their heads is Wall Street agitprop.
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Shocking!
