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Tuesday, August 2, 2011

What caused this mess


While we push and shove over the debt ceiling, I think it helpful to revisit on how the economy was destroyed using the housing market as the car bomb.

First, you have to remember the Community Reinvestment Act. This was a piece of social engineering that said that banks had to loan money to people who lived in certain areas and who had questionable credit.

The Community Reinvestment Act (CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.[4][5]

The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.) To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804.)[6]

Link

No doubt a warm and wonderful thing. Of course what happened was that the activists grabbed it and used it to make banks do their bidding.

But even that wasn’t enough. During the Clinton Administration credit was expanded.

Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action.....-- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.

Snip

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

NYT Link

Well, it took 4 years but some people caught on that a problem was looming.

By STEPHEN LABATON

Published: September 11, 2003

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan,.....a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac....

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

snip

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
NYT Link

The new regulations were blocked and almost 6 years later to the day we had the melt down.

We need to keep the above in mind as the Lefties do their “Anybody but Obamie” shake and bake.

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"Unlimited tolerance must lead to the disappearance of tolerance. If we extend unlimited tolerance even to those who are intolerant, if we are not prepared to defend a tolerant society against the onslaught of the intolerant, then the tolerant will be destroyed, and tolerance with them." - Karl Popper

“Necessity is the plea for every infringement of human freedom. It is the argument of tyrants. It is the creed of slaves.” - William Pitt

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