Democrats and the current economy

[MMJ_fanatic]

Democrats Behind CRA Cover-Up
by  Ernest Istook

10/15/2008    
As always, it's the cover-up that sinks people. Liberals are working overtime to cover up their role in the mortgage meltdown. Not only did they block attempts to reform Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac before they could drag down our economy, but liberals also abused the Community Reinvestment Act (CRA), turning it into a vehicle for directing loans to unqualified homebuyers.

The left knows that whoever shapes public understanding of what caused today's economic crisis can shape America's politics -- and its future -- for a great many years to come. Thus, they're pushing the notion that too little government regulation was at fault.

If the country buys this idea, liberals can enact a carbon-copy of FDR's response to the Great Depression, building a larger, more activist and ever-more-controlling federal government. They can exploit the mess by establishing a conventional wisdom that more government is the solution, rather than understanding how big government is a root cause of the current financial meltdown.

Claiming it all sprung from a lack of regulation is a half-truth, and a Yiddish proverb says a half truth is a whole lie. Over-regulation opened the money spigot by requiring lenders to make poorly underwritten loans. Under-regulation then allowed politicians to exploit that.

Although greed and dishonesty among both borrowers and lenders had major roles, the CRA and the GSEs were at the heart of what happened, setting up the now-toppled dominoes of Bear Stearns, Lehman Brothers, and others.

Over-regulation through CRA, aided by HUD, became a huge problem and, alas, wasn't even addressed in the multi-billion dollar bailout. The Clinton Treasury Department's tough new regulations in 1995 compelled the banks to engage in far-riskier lending practices or receive a failing CRA grade. To avoid an "F" from the CRA, which could jeopardize their viability, the banks were pressured to direct hundreds of billions of dollars in high-risk mortgages to inner-city and low-income neighborhoods. Moreover, under CRA pressure, banks would "hire" radical, non-profit groups like ACORN to find them customers. Once trillions of dollars began to flow, politicians and lobbyists tapped into this stream, and so did left-wing activist groups.

According to George Mason University's Russell Roberts, the CRA was buttressed by other new regulations during the Clinton Administration. As Roberts writes, "For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42 percent of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50 percent in 2000 and 52 percent in 2005.

For 1996, HUD required that 12 percent of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60 percent of their area's median income. That number was increased to 20 percent in 2000 and 22 percent in 2005. The 2008 goal was to be 28 percent."

The banks were kept from rebelling by using Fannie Mae and Freddie Mac's deep pockets to buy these poor-quality loans and take them off the banks' books.

Under-regulation of the GSEs -- Fannie Mae and Freddie Mac -- allowed the money stream to widen and keep flowing. There has always been an implicit understanding that taxpayers would cover GSE losses and this enabled them to attract money and pour it into the CRA-induced sub-prime market. The Bush Administration had warned about this for years. Fannie and Freddie, however, could skim enough to pay for political protection, plus pay sky-high executive salaries and bonuses to well-connected political figures.

Over the past decade, Fannie and Freddie combined to spend a reported $200 million on lobbying and campaign contributions. Now bailing them out may cost taxpayers $200 billion directly, and far more indirectly.

The circle of political back-scratching centered around the theme of affordable housing, which the GSEs marketed heavily. Politicians wanted housing for low-income and poor credit risks, so they used Fannie and Freddie to further that objective, and the GSEs responded with campaign help for those politicians.

In return, politicians resisted reforms. This was demonstrated at a 2004 House hearing, where Rep. Maxine Waters (D.-Calif.) denounced attempts to stiffen oversight and regulation of this duo "so as not to impede their affordable housing mission, a mission that has seen innovation flourish, from desktop underwriting to 100 percent loans."

"Desktop underwriting" meant undocumented loans. No proof of income or credit history required. And zero down payment.

Members of both parties were involved in protecting the system. But liberal Democrats were the dominant force.

Recently, House Financial Services Chairman Barney Frank (D-Mass.) told The Boston Globe, "[Republicans'] failure to regulate sensibly ... endangered the economy and ... burdened it with bad stuff.... Their own philosophy blew up in their face. They were so extreme in their insistence that there be no government intervention that they have wound up provoking far more government intervention than the Democrats ever would have."

But Frank is covering up his own role because he sang a far different tune in 2003, when the Bush Administration and many Republicans (including Sen. John McCain) tried to require Fannie and Freddie to comply with Securities and Exchange Commission regulations and other additional oversight requirements. Treasury Secretary John Snow, in fact, had specifically warned Congress that Fannie and Freddie needed a new supervisory structure so that both institutions would "maintain capital and reserves sufficient to support the risks that arise or exist in its business."

Rep. Frank was unconcerned. He told a hearing, "Fannie Mae and Freddie Mac are not in a crisis." Rather, he said, they were "fundamentally sound," and criticisms of them were unjustified exaggerations and "disaster scenarios." Then he confirmed why: "The more pressure there is [to regulate] then the less I think we see in terms of affordable housing"

He wanted to continue both the giveaway train supplying mortgages to those who couldn't afford them and the gravy train for politicians.

This appealed to liberals and in particular to the Congressional Black Caucus, which received six-figure support from both Fannie and Freddie in 2007.

The GSEs' major campaign largesse went to well-placed friends in key positions. The top six from 1998 thru 2008, according to the Center for Responsive Politics:

Sen. Chris Dodd (D.-Conn.)     $165,400
Sen. Barack Obama (D.-Ill.)     $126,349
Sen. John Kerry (D.-Mass.)      $111,000
Sen. Robert Bennett (R.-Utah)  $107,999
Rep. Spencer Bachus (R.-Ala.) $103,300
Rep. Roy Blunt (R.-Mo.)          $ 96,950

And almost everyone in Congress got something.

The GSEs lobbied hard, too. Their combined lobbying budget averaged $17 million a year. As described by Rep. Chris Shays (R.-Conn.), "They hire every lobbyist they can possibly hire. They hire some people to lobby and they hire other people not to lobby so the opposition cannot hire them."

But friends at the top were not enough. They needed them in every community, too. The Community Reinvestment Act guaranteed a steady stream of low-quality, but highly political, loans.

Congress passed the CRA in 1977 to combat "redlining," a lending practice that prevented loans to minority communities.

Clinton Administration regulations in the '90s added teeth to CRA, requiring banks to show compliance with meeting low-income loan targets or face civil actions that could assess a $500,000 penalty for each violation. Banks were "encouraged" to comply by hiring community groups (including ACORN) who contracted with financiers to steer low-income applicants to their institutions.

As the Manhattan Institute's Howard Husock wrote in 2000: "The Senate Banking Committee has estimated that, as a result of CRA, $9.5 billion so far has gone to pay for services and salaries of the nonprofit groups involved." The left created the system that paid its community organizers very handsomely, thanks to the regulations on the financial community.

As The Heritage Foundation's J.D. Foster recently noted, "While a worthy cause, the net effect [of CRA] is often to encourage loans at lower credit standards and to encourage people to buy houses they really cannot afford."

The net effect has also brought the economy to the brink of disaster. But unless the American public is told, re-told, and educated about how we got here, there won't be reform of the bailed-out-but-still-alive GSEs nor of the CRA. Then we would witness more big government, giving us far more help than we can afford.

[MMJ_fanatic]

bump

[corey]

Jesus Christ. You bumped a thread within 12 hours of posting it. Really?

[MMJ_fanatic]

Just thought it was impotant enough to keep it on the 1st page

[Penny Lane]

both dems and repubs were in the back pocket of fannie and freddie---Bush tried to pass a bill a few years ago but congress (i believe more dems) blocked it.  i love how people want to blame the bush admin for this when the ONE GOOD thing that he tried to do in 8 years--congress would not allow---now it makes me sick for people like reid and pelosi to call for regulation---where were you 3 years ago? i don't blame dems only though----both parties were getting kickbacks like you wouldn't believe

this is important:
For 1996, HUD required that 12 percent of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60 percent of their area's median income. That number was increased to 20 percent in 2000 and 22 percent in 2005. The 2008 goal was to be 28 percent."
--going all the way back to the clinton admin---we don't care if you can afford it or not--americans should own homes!!! i get the ideology, but now we're paying for it.

[MMJ_fanatic]

dems were the prime offenders as far as I can tell

[MMJ_fanatic]

doink

[MMJ_fanatic]

This is the worst type of vote pandering I've ever seen

[MMJ_fanatic]

I want Uncle Sam to lower my mortgage interest rate too!   :'(

[camille]

I doubt anyone will read this. This thread seems a bit played, but I just happened across it.

I'm a casual fan of mmj / casual reader of this board, but the egregious amount of bumper-sticker misinformation that drives voting habits in this country has reached my gag reflex, thus:

MMJ Fanatic, you have no idea what you are talking about on this issue.

Laying this gigantic international financial Krakatoa at the feet of Fannie and Freddie is retardedly disingenuous. The CDS market, this market for credit default swaps that was created in 2000 by Phil Gramm's Commodities Future Modernization Act, this is now a $62 trillion market, up from $900 billion in 2000. That's like five times the size of the holdings in the NYSE. And it's all speculation by Wall Street traders. It's a classic bubble/Ponzi scheme that was able to flourish when all reasonable regulations were stripped out of the laws.

DId Fannie and Freddie bring the entire country of Iceland down? Really? Send the Nikei on its biggest dive in the last 26 years? Cause England to nationalize the majority of its banks? Or could it be the fact that millions of crappy loans were bundled and resold, resold, resold, leveraged to upwards of 40x their worth, all based on magical mathematic formulas that were not remotely reality-based. This is Enron-style deception. There was no "there" there. There were no grown ups in the room.

The effort of people like you to pin this whole thing on democrats enabling poor people who, turns out, couldn't keep up with their mortgages, when in fact this whole thing has been caused by greedy traders dealing in unregulated markets, is despicable.

Reasonable people can agree to disagree on political issues - but only when everyone has their facts straight.

[Jon T.]

Reasonable people can agree to disagree on political issues - but only when everyone has their facts straight.

This is an excellent point that certainly pertains to ALL parties.  

I do disagree with one thing though...

"a casual fan of MMJ"

blasphemy    

;D ;D ;D

[Coltrane]

Seriously, someone please explain to me how Republicans are "good."

I don't see it. They're evil, plain and simple. Greed is not good. Helping your fellow man is good. Whether you like him/her or not. Money isn't everything, but it's all that Republicans seem to care about.

Well, that and being hypocritical about the role of government in our lives.





Goddamn, I am so fired up!!!!

[MMJ_fanatic]

MMJ Fanatic, you have no idea what you are talking about on this issue.

Or could it be the fact that millions of crappy loans were bundled and resold, resold, resold, leveraged to upwards of 40x their worth, all based on magical mathematic formulas that were not remotely reality-based. This is Enron-style deception. There was no "there" there. There were no grown ups in the room.

The effort of people like you to pin this whole thing on democrats enabling poor people who, turns out, couldn't keep up with their mortgages, when in fact this whole thing has been caused by greedy traders dealing in unregulated markets, is despicable.

Reasonable people can agree to disagree on political issues - but only when everyone has their facts straight.

Don't like the truth about your peeps eh?  You are correct the bad loans were sold over and over and quite a few ended up in foreign finacial holdings.  Now that these crappy loans have gone bad I'm sure the rest of the worlds opinion of the US has really skyrocketed. ::)  Plus this article is more focused on the situation in the US (in case you only skimmed it)--as am I.

America is built on the principle that you get ahead through hard work and proving your worth (at least where I come from) not socialism and and government "Nannying" to those who cannot get their shit together and pull themselves up.  There are also huge charitable organizations and self help programs (job corps etc.), on top of the already existent government welfare plans, which help people all over this great country.  Now theres talk of the government stepping in and helping the people who didn't qualify for mortgages in the 1st place with their loans by cutting interest on them.  Doesn't give much motivation to the average person cranking out 40+ hours/week at their job and making all their obligations through personal accountability and discipline.

Oh yeah Coltrane--smoke another.

[camille]

Don't like the truth about your peeps eh?  You are correct the bad loans were sold over and over and quite a few ended up in foreign finacial holdings.  Now that these crappy loans have gone bad I'm sure the rest of the worlds opinion of the US has really skyrocketed.   Plus this article is more focused on the situation in the US (in case you only skimmed it)--as am I.

America is built on the principle that you get ahead through hard work and proving your worth (at least where I come from) not socialism and and government "Nannying" to those who cannot get their shit together and pull themselves up.  There are also huge charitable organizations and self help programs (job corps etc.), on top of the already existent government welfare plans, which help people all over this great country.  Now theres talk of the government stepping in and helping the people who didn't qualify for mortgages in the 1st place with their loans by cutting interest on them.  Doesn't give much motivation to the average person cranking out 40+ hours/week at their job and making all their obligations through personal accountability and discipline.

good morning and welcome to the 21st century!

There is no more "I'm just worried about the US - not the rest of those guys." All of our markets are interconnected. Things that happen to the rest of the world send ripples and tsunamis our way, just as we send ripples and tsunamis out.

And again, your understanding of the size of the (imaginary) financial holdings is just not correct. If this were merely a case of some bad mortgages, it's a fire we could've contained . Who is more to blame for burning down the neighborhood? The kid playing with matches in the basement? or the kid who soaks the house in gasoline?

But at least there is something we can agree on - I, too, am dismayed about our New Nanny State. Your blessed Republicans, President Paulson in particular, has no problem whatsoever throwing a trillion tax payer dollars at Wall Street to, as you so eloquently put, "nanny those who cannot get their shit together and pull themselves up."

and billion dollar bonuses for all!
long live free markets!
you're all patriots!

[Penny Lane]

none of the bonus money is being paid from the loan

[camille]

none of the bonus money is being paid from the loan

all money is the same money.

if they had money to spare - enough say, to award bonuses - that money should have gone to rescuing their own business. They said they did not have enough to save their own business, they needed the tax payer to bail them out. They have no excess money. We gave them money. Our "loan" to them should be paid back to us before they take all their "extra" money and award bonuses.

[Janet]

Totally.  And quite frankly, if their companies were performing so poorly that they needed to be bailed out, then what the heck did they do to earn bonuses anyway?

[Penny Lane]

they don't wanna lose the good mgmt overseas, there is a whole mix into this, you can't blame dems (although they take more blame than repubs--you have to admit that) solely or mgmt of the firms, or wall street or people who took out mortgages they couldn't pay. unfortunately, the only people who understand how to fix wall street are the wall streeters--we need them----

calling repubs greedy and oversimplifying it saying they don't want to help their fellow man is BS, though---this all started w/the clinton admin wanting to let EVERYONE own a home--helping fellow man was what got us into this.

[camille]

they don't wanna lose the good mgmt overseas, there is a whole mix into this, you can't blame dems (although they take more blame than repubs--you have to admit that)

absolutely not.

This was "free markets" run amok. Alan Greenspan was called before Congress - a man who has his head around economics more than any of us ever will - and he basically said his entire life's philosophy has been wrong. Free markets clearly cannot police themselves. We need reasonable oversight. Not France-style oversight, but reasonable oversight.

This is not a republican/democrat issue except to say that the bumper-sticker operating philosophy of the republican party is free markets! free markets! the markets will police themselves! yada... and as Greenspan said - I know, I watched him do it with my jaw on the floor - that conservative philosophy was proven wrong on Sept. 21, the day Lehman Brothers failed and sent the free world into a financial meltdown.

Greenspan was the fed chair under republicans and democrats. This is a base idealogical difference more than it's a nuts and bolts policy difference. Totally unregulated markets do. not. work.

Yet many republicans, MMJ fanatic included - which is where this discussion started, are for further deregulations. This simply flies in the face of reality. If these institutions are "too big to fail" then somebody better be keeping an eye on their books. That's it.

If I falsify my income, I can't pay my mortgage, I lose my house, my credit. If wall street falsifies their numbers, millions of innocent people who have played by the rules and done nothing wrong lose trillions of dollars in hard-earned savings and then also get to pay for the bailout. Seriously.