A fusion opinion -
...partisan pundits claim that banks were forced to make bad loans to people who could not afford to repay them...
The original act in 1977 required federally insured banks to make loans in the communities they operated in; to combat discrimination in lending based on race or geography, called redlining. Banks could still reject applications but the rejections had to be based on objective factors such as credit, income, etc. A statement in December 2008 by Federal Reserve Governor Randall Kroszner stated that the CRA in no way contributed in any substantial manner to the crisis and at maximum, less than 10 percent of lenders that fall under CRA regulations issued sub-prime loans. Another federal data study illustrated that 84 percent of sub-prime loans were issued by non-regulated mortgage lenders and 83 percent of debts were held by private, non-CRA regulated entities.
Did any of those holding these bad debt publish financial reports? Did anyone notice this was bad business? Did anyone other than McCain try to fix the problem at Freddie/Fannie?
Why would anyone, like Barney Frank, think these institutions were sound?
The basic definition of a sub-prime loan in this case is a loan that is made without regard to the borrower’s actual income; allowing borrower to “state” their income without any supporting documents — W2, pay stub, etc. Other loans allowed for bad or shaky credit but the main component was the stated or NINJA (No Income, No Job, No Assets) loans.
I remember, in casual conversation over the years, the number of people who wonder how homeless people, could get mortgages. How folks, with very low incomes, could qualify for loans on super expensive homes. People in Congress thought Freddie/Fannie were sound?
While there are many factors that drove this crisis, I would lay the blame more on deregulation by both Bill Clinton and George Bush; greed and a desire by banks and investment houses to take advantage of the new loan options available; and, economic circumstance. In 1999, Clinton signed Gramm-Leach, a bill that repealed the 1930s Glass-Steagull Act. The new bill allowed the mixing of investment banking with commercial banking, which set the stage for derivatives, swaps and sub-prime loans. Clinton also signed a bill deregulating commodities trading, which further added to current situation. When Bush took office, he pursued even further deregulation through weakening standards. His administration actually weakened CRA enforcement standards. His “compassionate conservatism” was encouraging the private sector to accomplish social goals. He failed to grasp that the private sector responds to profit, not social justice.
When taxpayers are responsible for all the bad loans, it seems that the sky’s the limit for private banking and investing profits. Thanks again taxpayers!!! We were poor last year, and today can continue to pass out $15 billion in bonus money!!! Thanks for giving us free money to gamble some more. We need to keep our profits up.
While both Clinton and Bush used the CRA as a point for liberalizing capital, it was simply part of their toolbox for deregulation and allowing banks and financial institutions to run wild.
Both embraced the free flow of capital, though Clinton had more inclinations towards some regulation and enforcement. Both had officials with ties to Wall Street (Robert Rubin, Larry Summers, Henry Paulson) in their administrations.
I wonder if those folks are still in Washington? They sound so familiar?
A comment –
October 30 at 12:01 AM
by Keith J. Andreys
That was beautiful! Thank you. When the sinking ship could no longer be hidden all sorts of “professionals” were on TV and I could not understand what the hell they were talking about. I understood Glass-Steagull and Fannie and Freddie. I spent years studying Friedman, even back then I thought something didn’t seem right but could not put my finger on it until consumer debt and mortgages got out of control. Five years ago anyone who was paying attention knew that Wall Streets record profits were being supplied by the poorest of our nation and it was just a matter of time. When a kid working at McDonald’s living with his mom can buy a new Hummer or a condo with no down payment, the wheels have come off.
What you wrote was not what was on most news programs. I wish it had been. Thank you again, it is nice to know someone out there is paying attention.
read more here -
http://blogs.dailylobo.com/index.php/article/2009/10/placing_blame_in_housing_bust_a_political_pawn#comment2116Did anyone in our Congress see these bad financial reports? Trends?
Maybe they or their staff were not reading any financial reports? No one in Washington reads and comprehends?
And...the same folks are still making financial decisions for the nation? And, they are using the nation's credit card? And, they seem to believe that only the little people pay taxes?
