The Financial Crisis Explained
Posted by cann0nba11 on September 23, 2008
- In 1977, under Jimmy Carter, the Community Reinvestment Act (CRA) was passed, It requires banks to offer credit to their entire market area. It prohibited them from NOT giving loans to people in poorer areas of their community. The purpose of the act was to provide credit to under-served populations and commercial loans to small businesses. In other words, they were forced to offer credit to people that probably couldn”t pay the bank back. It was significantly and aggressively opposed by the banking community. But they had no choice, it became law.
- In 1995 the Clinton administration strengthened these laws and substantially increased the number of loans given to low and moderate income borrowers. This led to the creation of companies like Countrywide, lending institutions that did not mitigate loan risk by collecting savings deposits.
- The secondary mortgage market was born. Zero downpayment loans, no interest loans, balloon mortgages, etc. Banks had to get creative to grant loans. Failure to do so would result in close government scrutiny during bank mergers and acquisitions. The federal government motivated this banking behavior of providing loans to risky customers. And, the loans were not capitalized.
- In 2003 the Bush administration recommended a serious regulatory overhaul. The change was to move governmental supervision of two of the primary agents guaranteeing sub-prime loans (Fannie Mae and Freddie Mac) under a new agency created within the Department of Justice. It would give it more oversight and auditing power, and would require these two companies (FM & FM) to better capitalize their debt. Even so, what remained was the implied guarantee that the tax payer would back up these loans. This legislation was blocked by Democrats under the guise of trying to promote home ownership to people that couldn”t afford homes. Instead of acknowledging a major financial crisis, the Democrats were more concerned with getting poor people into homes.
- Similar legislation was proposed in 2005 but was again blocked by the Democrats. Senate Majority Leader Harry Reid said “we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process.” What the hell does Reid know about harming our economy? Just last week when asked about the current financial meltdown he said “we don”t know what to do.” That”s what I call leadership.
- In 2006 Charles Schumer and New York Mayor Bloomberg called for less regulation, stating that business auditing expenses haad grown far beyond Congress” expectations. They were arguing for the reduction of regulations passed after the Enron scandal.
- In 2007 Schumer and Chris Dodd called on Fannie Mae and Freddie Mac regulators to LIFT the portfolio cap so that they could give even more loans to more people They argued that allowing the two firms to buy more mortgages (mainly sub-prime notes), at least temporarily, would inject much needed liquidity into the market and calm the financial markets.
OK, that”s a lot of info. The point is that over a thirty year period our government created the financial mess our country is in. When the problem became noticed by Republicans all attempts to correct it were derailed by Democrats that were more concerned about individual benefits than the overall health of America. How”s that working out for you now, Democrats?
To add insult to injury, politicians that created this situation years ago by practically forcing banks to provide loans to non-creditworthy people and businesses, the same people that praised the banks for doing this years ago, are now publicly scolding the very same banks and claiming that their shady lending practices are the root of this financial evil! The hypocrisy is mind-numbing.
Now we are screwed and the government doesn’t know what to do. Henry Paulson, a democratic friend of Chuck Schumer, is trying to rush a $700 BILLION bailout plan, yet we have no idea what the plan entails, nor do we know if it will even work. Yet, they don”t give a crap, it”s not their money anyway, right? IT”S OUR MONEY! If you do the math, the cost of this plan is about $3,000 for every man, woman and child in America.
The road to hell is paved with good intentions. The bottom line: Socialism sucks. And voting for Obama won”t make things any better. In fact, Obama is closely tied to the people involved with failure of Fannie Mae and Freddie Mac.