The GOP plan was to punt until they could win back power and legislatively eliminate the Consumer Financial Protection Bureau. They hate it with every inch and fiber of their being and have yet to really show a solid reason why, particularly given the circumstances which led to its creation (lest our short-term memories get any shorter). Hammering out timing and procedural issues in liquidation rules is one thing. But make no mistake, the right is aiming for the neck on this one.
Per ExciteBiker: “…particularly given the circumstances which led to its creation (lest our short-term memories get any shorter).”
Do you mean the collapse of the housing market? – Which was caused by the Carter (democrat) administration when they forced banks to make loans to people who could not afford them – via the “Community Reinvestment Act (CRA)”. The regulations were made even more strict by the Clinton administration – all in an effort to get rid of “racism” in bank lending.
Too much is blaimed on the lack of regulations in the securities market. The real culprit is government intervention (bank underwriting).
Except that the collapse of the housing market took place entirely with mortgage securitization transactions that specifically did not include CRA loans. In fact, the primary portion of the collapse occurred with non-Fannie and Freddie loans (not to say that their insovlencies were not their own catastrophes); that is, the private mortgage origination and securitization markets.
So, high marks for both fiction and right wing mythology, but somewhat lower for, you know, facts.
Detroiter has some false claims. Therefore to elaborate…
Back in the early Clinton years, the big public debate was over Hillary Clinton’s controversial plan to overhaul the healthcare system. But the Clintons had another major agenda item that was hardly noticed at the time: to aggressively promote homeownership for racial minorities.
Based on a flawed study by the Boston Fed in 1992 (coauthored by an economist friend of Hillary), the Democrats claimed that minority homeownership rates were being held back by “racist” banking practices. The study found that minorities had a higher rejection rate for home loan applications than the general public. Without providing any direct evidence, the authors simply assumed that the underlying cause must be institutional racism in the banking industry.
Common sense tells us, however, that racist lending practices would backfire and harm no one except the very banks, if any, that engaged in such practices. If some banks were willing to pass up good business opportunities in order to deny loans to minorities, other banks would certainly be more than happy to step in and take the business. And if all white-owned banks were racist, a golden opportunity would exist for wealthy minorities (or non-racist whites) to open banks in under-served areas and do a booming business with little effort. Any wealthy entertainer or athlete, such as Oprah Winfrey, Michael Jordan, or any of hundreds of other wealthy athletes, could easily sponsor such a bank, for example. To believe that racist banks can stop qualified minorities from getting loans in this day and age, one must believe that (1) all white-owned banks are racist, and (2) no wealthy minorities (or non-racist whites) are willing to fill the void and make lots of easy money while providing badly needed services to minority communities.
But the Clintons and many other Democrats apparently believed such economic nonsense. To remedy the alleged racism at banks, they strengthened the “anti-redlining” regulations of the Community Reinvestment Act (CRA), which had originally been passed during the Carter years, and they instituted an aggressive campaign that forced lenders to abandon their established underwriting criteria and drastically lower their standards to accommodate minorities who would not otherwise qualify for a home loan.
Key figures in the matter were Attorney General Janet Reno and her Deputy, none other than Eric Holder. They aggressively intimidated banks with threats of prosecution, lawsuits, stiff fines, and regulatory roadblocks to expansion and mergers. They paid little attention to actual lending practices and underwriting criteria, focusing instead on the end results in terms of percentages of minority loans approved. It mattered not whether the lenders were actually discriminating on the basis of race or whether minorities in general simply had worse credit histories (statistics show that they do). It was classic “affirmative action” for home loans.
Reno aggressively prosecuted several banks for “racist” lending practices, and she also encouraged private lawsuits against banks. One such lawsuit was filed against Citibank by a little-known community organizer and civil-rights lawyer named Barack Obama. Other government agencies also embarked on witch-hunts, including the Comptroller of Currency, the President’s Fair Housing Council, and the Inter-agency Task Force on Fair Lending, the latter two having been set up by the Clinton administration specifically to harass banks. They even pressured some banks to open offices in dangerous neighborhoods.
With the US Attorney General and several other government agencies pressuring them to give more loans to minorities, banks and other lenders had no choice but to figure out ways to lower their underwriting standards. They drastically reduced or eliminated minimum down payments, increased limits on debt-to-income ratio, and started counting unemployment checks and food stamps as “income”! Then there were the infamous “NINJA” loans (no income, no job, no assets — no problem). It was financial insanity run amok — forced on lenders by the authority of the US government.
Not surprisingly, the reckless lending standards created the largest housing bubble in history. The bubble masked the underlying problem for several years. As long as housing prices were appreciating at a sufficient rate, the problem was not apparent and did not seem particularly urgent, certainly not to the general public. The unqualified buyers who got in early enough did reasonably well. As long as their property value had appreciated sufficiently they could always sell at a profit, or refinance, and not face default and foreclosure. But the unqualified buyers who got in later lost their homes and ended up much worse off than they would have been had traditional, uncoerced banking practices been permitted. It was a classic case of the unintended consequences of bad economic policy — ultimately harming the very minorities it was intended to help.
In 1995, HUD (The Dept. of Housing and Urban Development) authorized Fannie Mae and Freddie Mac to purchase mortgage-backed securities that included subprime and other risky CRA home loans. Since Fannie and Freddie are government sponsored enterprises (GSEs), this unprecedented move was widely interpreted by banks and Wall Street as implied government backing of subprime mortgages. Though hardly noticed at the time, this development effectively shifted the liability for loan defaults from lenders to taxpayers. By relieving lenders of financial risk for loan defaults, it strongly encouraged them to give more loans to unqualified applicants. As if all that weren’t bad enough, it also started the whole secondary market for subprime mortgages, which ended with the massive failures and subsequent bailouts of financial giants such as AIG and Citigroup. Had Clinton not started this bogus “investment” policy back in 1995, the massive TARP (Troubled Asset Relief Program) bailouts in 2008 would have been completely unnecessary.
Eventually the housing bubble burst, but not until around 2006 or 2007. By 2008 it brought the entire financial system to its knees, and since the Republicans had the White House at that time, the Democrats and the “mainstream” media were able to pin the brunt of the political blame on them. The general public was hardly aware of the historical roots of the problem, and the party in power was assumed to be responsible, as usual. The general public tends to naively assume that the party in power has full control of the economy and is completely unencumbered by existing laws, regulations, and policies that were in place before they were elected. In the case of the subprime mortgage crisis, that was a very bad assumption.
The Republicans were not completely innocent in the matter, but they were certainly not the driving force behind the subprime mortgage meltdown and the subsequent financial crisis. President Bush promoted legitimate homeownership, but he also caved in to the Democrats’ racial demagoguery and “went along” with their program to some extent. However, when Bush and the Republican Congress tried to actually head off the subprime mortgage crisis before it was too late, the Democrats opposed them fiercely.
When the Republicans attempted to rein in Fannie Mae and Freddie Mac in 2005, for example, the Democrats called them racists, as usual, and thwarted their efforts by filibustering with only 45 votes in the Senate. (A filibuster allows the minority party to block legislation in the US Senate with only 40 of 100 votes.) Hence, the Democrats prevailed even though the Republicans had the Presidency and controlled both house of Congress. But the general public simply assumes that the party in power must be responsible, and the Democrats managed to perpetrate the blatant lie that Republican opposition to stronger regulation was at the root of the problem.
Democratic Congressman Barney Frank and Democratic Senator Chris Dodd, along with nearly all other Democrats in Congress, opposed the Republicans initiatives to reform Fannie and Freddie, insisting repeatedly that those government sponsored enterprises were in sound financial condition and functioning as intended. Many Democrats claimed that Republicans simply wanted to suppress minority homeownership. It’s all on record, both written and video. Dodd and Frank later became the primary architects of the massive Dodd-Frank banking reform Act that was signed into law by Obama. Yeah, those are the two guys who should be rewriting banking regulations! (Not surprisingly, their reform bill does nothing to reform Fannie and Freddie.)
Leftists talk about “greedy” banks and “predatory” lending practices, but it was the Democrats who had actually forced banks against their will to recklessly provide home loans to unqualified applicants, many of whom later lost their homes to foreclosure. Before the housing bubble burst, Bill Clinton’s website proudly touted his accomplishments in promoting minority homeownership. After the bubble burst, that material was scrubbed and replaced with material blaming Republicans and banks for the financial crisis and the ensuing major recession. As a community organizer, Barack Obama sued banks to force them to give risky loans to unqualified minorities. Later, as a US Senator, he joined in the Democrats’ filibuster of the Republican attempts to reform the subprime mortgage industry. Yet he has the gall to routinely claim with a straight face that Republicans “drove the economy into a ditch.” That sort of mendacity is perhaps to be expected from politicians, but we certainly don’t have to fall for it.
The bottom line is that Democrats were the primary architects and the driving force behind the irresponsible banking practices that led to the subprime mortgage meltdown, the financial crisis, and the recession that resulted. But they managed to successfully pin the public blame on Republicans, and Barack Obama was elected as a result. If the Democrats are not finally held accountable in the next election, they will continue to wreck the US economy until it is unrecognizable as a free market, and the days of American prosperity will be over.
There were no CRA mortgages or loans in all of the AAA rated CMOs and CDOs in which the world invested, and lost their collective shirts. Let me repeat that: none.
Friend Random, if you were on the insurer side in 2007-09, you may recall the tremendous hits that our portfolios all took with the write-downs of these investments. There were no CRA loans in those investments. I’m not entirely sure on this, but I don’t think that the banks are even allowed to sell their CRA loans to anyone else.
So your several paragraphs on the CRA have exactly nothing to do with either the financial crisis or the rather weak tea statutes put in place to address the crisis’ cause.
Everyone, it looks like Detroiter has a problem connecting the dots.
Detroiter, let me put it in simple terms so you can understand.
1) Democrats (during the Carter years) create the Community Reinvestment Act (CRA).
2) Clinton strengthens the CRA and aggressively pursues heavier lending regulation – forcing banks to provide more sub-prime loans (one of his election promises).
3) Attorney General Janet Reno and her deputy, Eric Holder begin to aggresively intimidate banks with threats of prosecution, law suites, fines, and roadblocks to expansion/mergers – if the banks did not comply and start providing loans to more minorities.
4) Due to this threat, banks did what they were told to do… make more loans to minorities (regardless of underwriting standards). In simple terms, they were just trying to meet gov’t benchmarks.
5) As pressure intensified, more and more banks started lowering underwriting standards (and we have been on that road ever since).
6) Fannie & Freddie (gov’t sponsored lending organizations) are authorized to purchase mortgage backed securities (with included CRA and other subprime loans).
7) This move was widely interpreted by banks and Wall Street as implied government backing of subprime mortgages and effectively shifted the liability for loan defaults from lenders to taxpayers.
8) By relieving lenders of financial risk for loan defaults, it strongly encouraged them to give more loans to unqualified applicants.
9) This started the whole secondary market for subprime mortgages, which ended with the massive failures and subsequent bailouts of financial giants such as AIG and Citigroup.
10) The housing bubble burst and the rest is history.
Increased foreclosure rates in 2006–2007 among U.S. homeowners (due to the CRA and above timeline) led to a crisis in August 2008 for the subprime, Alt-A, collateralized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, the U.S. Secretary of the Treasury called the bursting housing bubble “the most significant risk to our economy.”
Any collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but the nation’s mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession.
Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts.
In 2008 alone, the United States government allocated over $900 billion to special loans and rescues related to the US housing bubble, with over half going to Fannie Mae and Freddie Mac (both of which are government-sponsored enterprises) as well as the Federal Housing Administration (which is a United States Government agency). On December 24, 2009 the Treasury Department made an unprecedented announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years despite acknowledging losses in excess of $400 billion so far. The Treasury has been criticized for encroaching on spending powers that are enumerated for Congress alone by the US constitution, and for violating limits imposed by the Housing and Economic Recovery Act of 2008.
September 24, 2012 at 5:09 pm
Detroiter says:
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And if you want to be angry at Democrats, try being angry at them for repealing Glass-Steagall.
Random … Dude, the mortgages that got us into trouble were not CRA mortgages. I get that you don’t like the CRA. Not part of this particular problem. I may really hate the New York Yankees, but that doesn’t have a lot to do with this weekend’s Notre Dame-Michigan football game. Yeah, they’re both sports, but otherwise it’s hard to connect the dots.
Subprime mortgages, originated mainly by independent mortgage companies, sold to mortgage buyers (mainly big banks like Morgan Stanley or Bank of America), combined into zillions of varied securitizations, further sliced and diced and then blessed by the rating agencies. World wide disaster.
CRA loans are local loans made by local banks – big and small – and not put into loan securiitzations. The subprime mortgage debacle did not include them. Sorry, facts and all.
September 25, 2012 at 10:58 am
Random says:
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The CRA led to all of this mess. Even if “CRA Loans” weren’t directly involved (which I believe they were), it led to aggressive actions on banks by liberal cronies. The banks, with no option but to comply, started making the bad loans. The rest follows. Hence why the CRA is the major player in all of this.
September 24, 2012 at 5:10 pm
B says:
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Funny how quiet it gets when someone takes the time to detail the facts!
B.S. Greed is what caused “all this mess”. No one forced those banks to make sub-prime loans. They knew it was bad business from the get go and went full steam ahead in order to make millions. Then they securitized and sold them to get them off their books. The folks that bought the securitized loans bought insurance that the hedged their bets in the event of their inevitable failure. This was a scheme cooked up by Wall Street financiers to make money, screw the public, and walk away unscathed. Pure and simple. Greed.
September 25, 2012 at 1:37 pm
Random says:
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0
0
B.S. Yes greed contributed (and a lot!), but absolutely were the banks forced to make these loans.
Greed exists in government as well (probably more so) – what it will take to make some people understand that is beyond me.
What rock have you been living under?
September 24, 2012 at 2:53 pm
Nan says:
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We would not have needed this new legislation if we had “grown ups” in DC who would look after Americans….Bill Clinton Repealed Glass Steagall at the behest of the GOP legislature and Americans have not been protected ever since…it just took a while for the crap to hit the fan… Wall Street lives in lala land! Read this:
We know that Glass Steagall (aka The Banking Act of 1933) was a simple, effective, easy-to-follow regulatory rule that kept commercial (aka taxpayer-insured depository) banks separate from their more speculative Wall Street investment bank brethren.
Right on point, Random.
For more information regarding ‘Greed’ – look up Franklin Raines who was the CEO of Fannie Mae. Look at how he beefed the numbers to make over $20 a year in bonuses which all contributed to this mess.
A good place to start: http://en.wikipedia.org/wiki/Franklin_Raines
The GOP plan was to punt until they could win back power and legislatively eliminate the Consumer Financial Protection Bureau. They hate it with every inch and fiber of their being and have yet to really show a solid reason why, particularly given the circumstances which led to its creation (lest our short-term memories get any shorter). Hammering out timing and procedural issues in liquidation rules is one thing. But make no mistake, the right is aiming for the neck on this one.
Ignorance is bliss.
Per ExciteBiker: “…particularly given the circumstances which led to its creation (lest our short-term memories get any shorter).”
Do you mean the collapse of the housing market? – Which was caused by the Carter (democrat) administration when they forced banks to make loans to people who could not afford them – via the “Community Reinvestment Act (CRA)”. The regulations were made even more strict by the Clinton administration – all in an effort to get rid of “racism” in bank lending.
Too much is blaimed on the lack of regulations in the securities market. The real culprit is government intervention (bank underwriting).
Please do some research before posting next time.
Except that the collapse of the housing market took place entirely with mortgage securitization transactions that specifically did not include CRA loans. In fact, the primary portion of the collapse occurred with non-Fannie and Freddie loans (not to say that their insovlencies were not their own catastrophes); that is, the private mortgage origination and securitization markets.
So, high marks for both fiction and right wing mythology, but somewhat lower for, you know, facts.
Detroiter has some false claims. Therefore to elaborate…
Back in the early Clinton years, the big public debate was over Hillary Clinton’s controversial plan to overhaul the healthcare system. But the Clintons had another major agenda item that was hardly noticed at the time: to aggressively promote homeownership for racial minorities.
Based on a flawed study by the Boston Fed in 1992 (coauthored by an economist friend of Hillary), the Democrats claimed that minority homeownership rates were being held back by “racist” banking practices. The study found that minorities had a higher rejection rate for home loan applications than the general public. Without providing any direct evidence, the authors simply assumed that the underlying cause must be institutional racism in the banking industry.
Common sense tells us, however, that racist lending practices would backfire and harm no one except the very banks, if any, that engaged in such practices. If some banks were willing to pass up good business opportunities in order to deny loans to minorities, other banks would certainly be more than happy to step in and take the business. And if all white-owned banks were racist, a golden opportunity would exist for wealthy minorities (or non-racist whites) to open banks in under-served areas and do a booming business with little effort. Any wealthy entertainer or athlete, such as Oprah Winfrey, Michael Jordan, or any of hundreds of other wealthy athletes, could easily sponsor such a bank, for example. To believe that racist banks can stop qualified minorities from getting loans in this day and age, one must believe that (1) all white-owned banks are racist, and (2) no wealthy minorities (or non-racist whites) are willing to fill the void and make lots of easy money while providing badly needed services to minority communities.
But the Clintons and many other Democrats apparently believed such economic nonsense. To remedy the alleged racism at banks, they strengthened the “anti-redlining” regulations of the Community Reinvestment Act (CRA), which had originally been passed during the Carter years, and they instituted an aggressive campaign that forced lenders to abandon their established underwriting criteria and drastically lower their standards to accommodate minorities who would not otherwise qualify for a home loan.
Key figures in the matter were Attorney General Janet Reno and her Deputy, none other than Eric Holder. They aggressively intimidated banks with threats of prosecution, lawsuits, stiff fines, and regulatory roadblocks to expansion and mergers. They paid little attention to actual lending practices and underwriting criteria, focusing instead on the end results in terms of percentages of minority loans approved. It mattered not whether the lenders were actually discriminating on the basis of race or whether minorities in general simply had worse credit histories (statistics show that they do). It was classic “affirmative action” for home loans.
Reno aggressively prosecuted several banks for “racist” lending practices, and she also encouraged private lawsuits against banks. One such lawsuit was filed against Citibank by a little-known community organizer and civil-rights lawyer named Barack Obama. Other government agencies also embarked on witch-hunts, including the Comptroller of Currency, the President’s Fair Housing Council, and the Inter-agency Task Force on Fair Lending, the latter two having been set up by the Clinton administration specifically to harass banks. They even pressured some banks to open offices in dangerous neighborhoods.
With the US Attorney General and several other government agencies pressuring them to give more loans to minorities, banks and other lenders had no choice but to figure out ways to lower their underwriting standards. They drastically reduced or eliminated minimum down payments, increased limits on debt-to-income ratio, and started counting unemployment checks and food stamps as “income”! Then there were the infamous “NINJA” loans (no income, no job, no assets — no problem). It was financial insanity run amok — forced on lenders by the authority of the US government.
Not surprisingly, the reckless lending standards created the largest housing bubble in history. The bubble masked the underlying problem for several years. As long as housing prices were appreciating at a sufficient rate, the problem was not apparent and did not seem particularly urgent, certainly not to the general public. The unqualified buyers who got in early enough did reasonably well. As long as their property value had appreciated sufficiently they could always sell at a profit, or refinance, and not face default and foreclosure. But the unqualified buyers who got in later lost their homes and ended up much worse off than they would have been had traditional, uncoerced banking practices been permitted. It was a classic case of the unintended consequences of bad economic policy — ultimately harming the very minorities it was intended to help.
In 1995, HUD (The Dept. of Housing and Urban Development) authorized Fannie Mae and Freddie Mac to purchase mortgage-backed securities that included subprime and other risky CRA home loans. Since Fannie and Freddie are government sponsored enterprises (GSEs), this unprecedented move was widely interpreted by banks and Wall Street as implied government backing of subprime mortgages. Though hardly noticed at the time, this development effectively shifted the liability for loan defaults from lenders to taxpayers. By relieving lenders of financial risk for loan defaults, it strongly encouraged them to give more loans to unqualified applicants. As if all that weren’t bad enough, it also started the whole secondary market for subprime mortgages, which ended with the massive failures and subsequent bailouts of financial giants such as AIG and Citigroup. Had Clinton not started this bogus “investment” policy back in 1995, the massive TARP (Troubled Asset Relief Program) bailouts in 2008 would have been completely unnecessary.
Eventually the housing bubble burst, but not until around 2006 or 2007. By 2008 it brought the entire financial system to its knees, and since the Republicans had the White House at that time, the Democrats and the “mainstream” media were able to pin the brunt of the political blame on them. The general public was hardly aware of the historical roots of the problem, and the party in power was assumed to be responsible, as usual. The general public tends to naively assume that the party in power has full control of the economy and is completely unencumbered by existing laws, regulations, and policies that were in place before they were elected. In the case of the subprime mortgage crisis, that was a very bad assumption.
The Republicans were not completely innocent in the matter, but they were certainly not the driving force behind the subprime mortgage meltdown and the subsequent financial crisis. President Bush promoted legitimate homeownership, but he also caved in to the Democrats’ racial demagoguery and “went along” with their program to some extent. However, when Bush and the Republican Congress tried to actually head off the subprime mortgage crisis before it was too late, the Democrats opposed them fiercely.
When the Republicans attempted to rein in Fannie Mae and Freddie Mac in 2005, for example, the Democrats called them racists, as usual, and thwarted their efforts by filibustering with only 45 votes in the Senate. (A filibuster allows the minority party to block legislation in the US Senate with only 40 of 100 votes.) Hence, the Democrats prevailed even though the Republicans had the Presidency and controlled both house of Congress. But the general public simply assumes that the party in power must be responsible, and the Democrats managed to perpetrate the blatant lie that Republican opposition to stronger regulation was at the root of the problem.
Democratic Congressman Barney Frank and Democratic Senator Chris Dodd, along with nearly all other Democrats in Congress, opposed the Republicans initiatives to reform Fannie and Freddie, insisting repeatedly that those government sponsored enterprises were in sound financial condition and functioning as intended. Many Democrats claimed that Republicans simply wanted to suppress minority homeownership. It’s all on record, both written and video. Dodd and Frank later became the primary architects of the massive Dodd-Frank banking reform Act that was signed into law by Obama. Yeah, those are the two guys who should be rewriting banking regulations! (Not surprisingly, their reform bill does nothing to reform Fannie and Freddie.)
Leftists talk about “greedy” banks and “predatory” lending practices, but it was the Democrats who had actually forced banks against their will to recklessly provide home loans to unqualified applicants, many of whom later lost their homes to foreclosure. Before the housing bubble burst, Bill Clinton’s website proudly touted his accomplishments in promoting minority homeownership. After the bubble burst, that material was scrubbed and replaced with material blaming Republicans and banks for the financial crisis and the ensuing major recession. As a community organizer, Barack Obama sued banks to force them to give risky loans to unqualified minorities. Later, as a US Senator, he joined in the Democrats’ filibuster of the Republican attempts to reform the subprime mortgage industry. Yet he has the gall to routinely claim with a straight face that Republicans “drove the economy into a ditch.” That sort of mendacity is perhaps to be expected from politicians, but we certainly don’t have to fall for it.
The bottom line is that Democrats were the primary architects and the driving force behind the irresponsible banking practices that led to the subprime mortgage meltdown, the financial crisis, and the recession that resulted. But they managed to successfully pin the public blame on Republicans, and Barack Obama was elected as a result. If the Democrats are not finally held accountable in the next election, they will continue to wreck the US economy until it is unrecognizable as a free market, and the days of American prosperity will be over.
There were no CRA mortgages or loans in all of the AAA rated CMOs and CDOs in which the world invested, and lost their collective shirts. Let me repeat that: none.
Friend Random, if you were on the insurer side in 2007-09, you may recall the tremendous hits that our portfolios all took with the write-downs of these investments. There were no CRA loans in those investments. I’m not entirely sure on this, but I don’t think that the banks are even allowed to sell their CRA loans to anyone else.
So your several paragraphs on the CRA have exactly nothing to do with either the financial crisis or the rather weak tea statutes put in place to address the crisis’ cause.
Everyone, it looks like Detroiter has a problem connecting the dots.
Detroiter, let me put it in simple terms so you can understand.
1) Democrats (during the Carter years) create the Community Reinvestment Act (CRA).
2) Clinton strengthens the CRA and aggressively pursues heavier lending regulation – forcing banks to provide more sub-prime loans (one of his election promises).
3) Attorney General Janet Reno and her deputy, Eric Holder begin to aggresively intimidate banks with threats of prosecution, law suites, fines, and roadblocks to expansion/mergers – if the banks did not comply and start providing loans to more minorities.
4) Due to this threat, banks did what they were told to do… make more loans to minorities (regardless of underwriting standards). In simple terms, they were just trying to meet gov’t benchmarks.
5) As pressure intensified, more and more banks started lowering underwriting standards (and we have been on that road ever since).
6) Fannie & Freddie (gov’t sponsored lending organizations) are authorized to purchase mortgage backed securities (with included CRA and other subprime loans).
7) This move was widely interpreted by banks and Wall Street as implied government backing of subprime mortgages and effectively shifted the liability for loan defaults from lenders to taxpayers.
8) By relieving lenders of financial risk for loan defaults, it strongly encouraged them to give more loans to unqualified applicants.
9) This started the whole secondary market for subprime mortgages, which ended with the massive failures and subsequent bailouts of financial giants such as AIG and Citigroup.
10) The housing bubble burst and the rest is history.
Increased foreclosure rates in 2006–2007 among U.S. homeowners (due to the CRA and above timeline) led to a crisis in August 2008 for the subprime, Alt-A, collateralized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, the U.S. Secretary of the Treasury called the bursting housing bubble “the most significant risk to our economy.”
Any collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but the nation’s mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession.
Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts.
In 2008 alone, the United States government allocated over $900 billion to special loans and rescues related to the US housing bubble, with over half going to Fannie Mae and Freddie Mac (both of which are government-sponsored enterprises) as well as the Federal Housing Administration (which is a United States Government agency). On December 24, 2009 the Treasury Department made an unprecedented announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years despite acknowledging losses in excess of $400 billion so far. The Treasury has been criticized for encroaching on spending powers that are enumerated for Congress alone by the US constitution, and for violating limits imposed by the Housing and Economic Recovery Act of 2008.
And if you want to be angry at Democrats, try being angry at them for repealing Glass-Steagall.
Random … Dude, the mortgages that got us into trouble were not CRA mortgages. I get that you don’t like the CRA. Not part of this particular problem. I may really hate the New York Yankees, but that doesn’t have a lot to do with this weekend’s Notre Dame-Michigan football game. Yeah, they’re both sports, but otherwise it’s hard to connect the dots.
Subprime mortgages, originated mainly by independent mortgage companies, sold to mortgage buyers (mainly big banks like Morgan Stanley or Bank of America), combined into zillions of varied securitizations, further sliced and diced and then blessed by the rating agencies. World wide disaster.
CRA loans are local loans made by local banks – big and small – and not put into loan securiitzations. The subprime mortgage debacle did not include them. Sorry, facts and all.
The CRA led to all of this mess. Even if “CRA Loans” weren’t directly involved (which I believe they were), it led to aggressive actions on banks by liberal cronies. The banks, with no option but to comply, started making the bad loans. The rest follows. Hence why the CRA is the major player in all of this.
Funny how quiet it gets when someone takes the time to detail the facts!
B.S. Greed is what caused “all this mess”. No one forced those banks to make sub-prime loans. They knew it was bad business from the get go and went full steam ahead in order to make millions. Then they securitized and sold them to get them off their books. The folks that bought the securitized loans bought insurance that the hedged their bets in the event of their inevitable failure. This was a scheme cooked up by Wall Street financiers to make money, screw the public, and walk away unscathed. Pure and simple. Greed.
B.S. Yes greed contributed (and a lot!), but absolutely were the banks forced to make these loans.
Greed exists in government as well (probably more so) – what it will take to make some people understand that is beyond me.
What rock have you been living under?
We would not have needed this new legislation if we had “grown ups” in DC who would look after Americans….Bill Clinton Repealed Glass Steagall at the behest of the GOP legislature and Americans have not been protected ever since…it just took a while for the crap to hit the fan… Wall Street lives in lala land! Read this:
We know that Glass Steagall (aka The Banking Act of 1933) was a simple, effective, easy-to-follow regulatory rule that kept commercial (aka taxpayer-insured depository) banks separate from their more speculative Wall Street investment bank brethren.
Amen, Sister.
Hallelujah and Amen!
Right on point, Random.
For more information regarding ‘Greed’ – look up Franklin Raines who was the CEO of Fannie Mae. Look at how he beefed the numbers to make over $20 a year in bonuses which all contributed to this mess.
A good place to start: http://en.wikipedia.org/wiki/Franklin_Raines