Smoking-gun edict shows the Federal govt was behind the Housing Meltdown

[Little-Acorn]

In case the hundreds of other documented examples of the Fed govt threatening lenders with lawsuits etc., and huge govt entities like Fannie Mawe and Freddie Mac setting up gigantinc programs to buy risky mortgage loans from those who made them, thus absolving the original lenders of the risk of making those loans...

Here's an official Policy Statement laying down the plans for dioing those things. Authored in 1994 by the Clinton administration and carried out rotely by the people who are trying hard now, to pretend that the resulting crash of the U.S. economy was someone else's fault.

The more time goes by, the more of these "smoking gun" documents emerge... and the more shrill and strident the leftists' denials become.

-----------------------------------------------------------

http://finance.yahoo.com/news/Smoking-Gun-Edict-Shows-Gov-ibd-3846212214.html

Smoking-Gun Edict Shows Gov't Behind Housing Meltdown

Investor's Business Daily – Mon, Oct 31, 2011 4:38 PM EDT.

President Obama says the Occupy Wall Street protests show a "broad-based frustration" among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis. "You're seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he complained earlier this month.

But what if government encouraged, even invented, those "abusive practices"?

Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rate, and launched what would prove the costliest social crusade in U.S. history. At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

Bubble? Regulators Blew It

The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

"The agencies will not tolerate lending discrimination in any form," the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agen cies as a fair-lending enforcement "tool," and would apply to "all lenders" — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial "discrimination." But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower's credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants' net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

[ConHog]

In case the hundreds of other documented examples of the Fed govt threatening lenders with lawsuits etc., and huge govt entities like Fannie Mawe and Freddie Mac setting up gigantinc programs to buy risky mortgage loans from those who made them, thus absolving the original lenders of the risk of making those loans...

Here's an official Policy Statement laying down the plans for dioing those things. Authored in 1994 by the Clinton administration and carried out rotely by the people who are trying hard now, to pretend that the resulting crash of the U.S. economy was someone else's fault.

The more time goes by, the more of these "smoking gun" documents emerge... and the more shrill and strident the leftists' denials become.

-----------------------------------------------------------

http://finance.yahoo.com/news/Smoking-Gun-Edict-Shows-Gov-ibd-3846212214.html

Smoking-Gun Edict Shows Gov't Behind Housing Meltdown

Investor's Business Daily – Mon, Oct 31, 2011 4:38 PM EDT.

President Obama says the Occupy Wall Street protests show a "broad-based frustration" among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis. "You're seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he complained earlier this month.

But what if government encouraged, even invented, those "abusive practices"?

Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rate, and launched what would prove the costliest social crusade in U.S. history. At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

Bubble? Regulators Blew It The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

"The agencies will not tolerate lending discrimination in any form," the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agen cies as a fair-lending enforcement "tool," and would apply to "all lenders" — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial "discrimination." But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower's credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants' net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

yet another example of why affirmative action and all forms of supposed anti discrimination laws should be removed from the law.

[Little-Acorn]

yet another example of why affirmative action and all forms of supposed anti discrimination laws should be removed from the law.

There are plenty of reasons why affirmative action and all the other racially-discriminant laws should be removed. But this wasn't one of them.

This is a reason why hysterical leftists demagogues should be removed from the lawmaking process.

[ConHog]

There are plenty of reasons why affirmative action and all the other racially-discriminant laws should be removed. But this wasn't one of them.

This is a reason why hysterical leftists demagogues should be removed from the lawmaking process.

Really? Read the article again, it seemed pretty clear to me that blacks were given preferential consideration even if they weren't eligible for loans. I can only think of one reason why that would be so.

But maybe I just read it wrong.

[red states rule]

In case the hundreds of other documented examples of the Fed govt threatening lenders with lawsuits etc., and huge govt entities like Fannie Mawe and Freddie Mac setting up gigantinc programs to buy risky mortgage loans from those who made them, thus absolving the original lenders of the risk of making those loans...

Here's an official Policy Statement laying down the plans for dioing those things. Authored in 1994 by the Clinton administration and carried out rotely by the people who are trying hard now, to pretend that the resulting crash of the U.S. economy was someone else's fault.

The more time goes by, the more of these "smoking gun" documents emerge... and the more shrill and strident the leftists' denials become.

-----------------------------------------------------------

http://finance.yahoo.com/news/Smoking-Gun-Edict-Shows-Gov-ibd-3846212214.html

Smoking-Gun Edict Shows Gov't Behind Housing Meltdown

Investor's Business Daily – Mon, Oct 31, 2011 4:38 PM EDT.

President Obama says the Occupy Wall Street protests show a "broad-based frustration" among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis. "You're seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he complained earlier this month.

But what if government encouraged, even invented, those "abusive practices"?

Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rate, and launched what would prove the costliest social crusade in U.S. history. At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

Bubble? Regulators Blew It

The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

"The agencies will not tolerate lending discrimination in any form," the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agen cies as a fair-lending enforcement "tool," and would apply to "all lenders" — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial "discrimination." But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower's credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants' net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.


and yet we were told by the NY Times how great an idea this was





Fannie Mae Eases Credit To Aid Mortgage Lending

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, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

<!-- Module ends: a-body-first-para-->''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

<!-- Module ends: article-header-->http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html

[Little-Acorn]

and yet we were told by the NY Times how great an idea this was

RSR, what a great find! Thank you! (you must spread some reputation around before giving it to red states rule again)


You know, there are a few especially interesting details to be had in this editorial.

It mentions that sub-prime loans are for customers whose incomes, credit ratings, savings etc. aren't quite good enough to qualify for more conventional loans.

And the companies' response? The article says they RAISED THE INTEREST RATES in these sub-prime loans.

Now, why would they do that?

They are in the business of making money, of course, as any company must be. But why raise interest rates on this particular group?

They raised interest rates on this group, because they figured that a higher percentage of them than normal, would fail to pay the loans back, and would default. This would force the lender to foreclose, which itself costs money, for legal fees, lost payments, and losses when the foreclosed house was later sold, frequently for less than market value.

Of course, the people who defaulted, actually would not be affected AS MUCH by these higher rates, than the people who did not default, but managed to find a way to keep making the higher payments. The defaulters would make only one year of payments, or two or five (or maybe one month), before bugging out; while those who did not default made all 20 or 30 years of the required payments; or found ways to refinance or sell before they faced foreclosure, thus taking the loss themselves instead of tossing it back onto the people who had lent them the money.

In other words, the lender decided to cover the amounts they lost to defaulters, by increasing the amounts the took in from the people able to keep paying!

Among liberals, isn't this known as "transferring the wealth"?

Never mind that the people they're getting more money from, are BARELY more able than the ones who are soaking up that money (the defaulters) to pay it. The fact remains that they are demonstrably more able to pay, doesn't it?

So why are so many liberals now screaming at those lenders, accusing them of "predatory lending practices", and "discrimination", etc.? When in fact the lenders did exactly what the liberals themselves have been demanding all along - transferring money from those more able to pay, to those who are less able (or perhaps less willing) to pay?

[red states rule]

BTW, did nayone notice who was President when that artiole was published?

LA, here are some FACTS I have seen personally

Many of loans that have gone to f/s people have not made payments for YEARS.

I have seen people NEVER respond to letters and phone calls offereing them help in finding a workout plan

I have seen people file bankruptcy the DAY of the f/c sale to buy time to see the sale happen BEFORE the bankruptcy filing. Thus they have watsed their money

Many loans that have been modified and now have an interest rate of 2% - the borrowers are once again in default

These instances tell me the person in the home cannot afford it and they need to become RENTERS. Of course the liberal media, Dems, and most of these borrowers will tell you how the banks are the bad guy, they misled the unsuspecting borrower, they are not willing to help the borrower stay in THEIR home, and the bank is putting profits ahead of human beings

It is the typical BS the left is known for. Ignoire the facts and tug on the heartstrings of people

[Toro]

The CRA did not cause the Financial Crisis. Sorry. That is fiction. There is no "smoking gun."

If you believe the CRA caused the Financial Crisis, you are effectively saying that markets don't work. Why? Because if the CRA was the cause of the crisis, then you would have expected to see areas with CRA loans have the biggest increases in home prices since the credit transmission mechanism should have meant an excess of credit flowing into those areas. But that didn't happen. Also, you would have expected CRA mortgages to have had a higher rate of delinquency and default. But again, that did not happen. Home prices did not rise any faster nor have mortgage defaults been any greater in CRA areas.

Also, even if this were all true, it does not mean that non-CRA lenders were compelled to lower lending standards. Again, if would mean market failure, because if free markets worked as efficiently as the dogmatic free market ideologues claimed, then lenders should have been able to ascertain the risks of lowering lending standards excessively, and the efficient market hypothesis - the underpinnings of the ideology - goes out the window.

The other problem that the dogmatic ideologues cannot explain is how did the CRA cause housing bubbles all around the world? There were housing bubbles everywhere, none of which had any connection with the CRA. l think we can all agree with the relationship

cause ----> effect

If the effect was "global housing bubble," then the CRA cannot possibly be the cause. For instance, how did the CRA cause the housing bubbles in Ireland, Canada and Australia, just to name a few.

Finally, 24 of the 25 largest subprime lenders were not subject to CRA regulations. It's pretty hard with a straight face to say that the CRA caused the Housing Crisis when virtually all of the largest subprime lenders had nothing to do with the CRA.

[pegwinn]

yet another example of why affirmative action and all forms of supposed anti discrimination laws should be removed from the law.

Ron and Rand agree with you

[gabosaurus]

Much of the blame has to go to lack of oversight and regulation of the lending business during the previous administration. Any financial person can tell you that. The big lending agencies were making huge risks on insolvent buyers, many whose credit record showed they had no chance to make their payments. And it wasn't just minority buyers, but everyone.

[fj1200]

Much of the blame has to go to lack of oversight and regulation of the lending business during the previous administration. Any financial person can tell you that. The big lending agencies were making huge risks on insolvent buyers, many whose credit record showed they had no chance to make their payments. And it wasn't just minority buyers, but everyone.

Like when Bush wanted to increase the regulatory environment on F&F but was rebuffed by Congress? :rolleyes:

Besides, everyone is wrong; virtually all the blame belongs at the Fed and it's appalling monetary policy.

[red states rule]

Much of the blame has to go to lack of oversight and regulation of the lending business during the previous administration. Any financial person can tell you that. The big lending agencies were making huge risks on insolvent buyers, many whose credit record showed they had no chance to make their payments. And it wasn't just minority buyers, but everyone.

Let me take down Memory Lane once again Gabby

Please note the dates and how your fellow liberals responded to Pres Bush's attempts to try and stop the coming train wreck




September 25, 2008Barney Frank opposed regulating Fannie Mae and Freddie Mac in 2003, but no one reminds himI’m not going to give John McCain campaign tips (I'm leaning toward Obama), but how does McCain let such Democrats as Rep. Barney Frank get away with telling the press that McCain and President Bush opposed regulations on financial institutions, when it was Frank himself who long opposed those regulations?

Frank 'no crisis.' The New York Times reported on Sept. 11, 2003 (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&scp=1&sq=%22barney+frank%22&st=nyt):

''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."
McCain warning. On the other hand, McCain on May 25, 2006, backed specific legislation to regulate (http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190#sMonofilemx003Ammx002Fmmx002Fmmx002Fmhomemx002 Fmgovtrackmx002Fmdatamx002Fmusmx002Fm109mx002Fmcrm x002Fms20060525-16.xmlElementm0m0m0m) Fannie Mae and Freddie Mac, a year before Frank finally caved in and called for reform only after it was too late.

"I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation," McCain said. "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."
Yet I saw Barney Frank interviewed several times yesterday, accusing Bush and McCain of blocking financial reforms, and not one reporter asked him about his own long and loud record of willful neglect. As Power Line's John Hinderacker (http:///) asks today:

Maybe it's too much to expect anyone to remember the distant past -- 2003 -- but still, it seems remarkable that Barney Frank can make the rounds of the television talk shows, pontificating on the current crisis, without being reminded of his own role.
Democrats' responsibility. Frank's audacity is bizarre. The press is equally stunning in its oblivious silence. McCain has made some attempts to tell voters about this, but McCain's words have been obscured or omitted in news

http://frankwarner.typepad.com/free_frank_warner/2008/09/barney-frank-op.html



and we have the Dems in their own words Gabby

<IFRAME height=315 src="http://www.youtube.com/embed/LPSDnGMzIdo" frameBorder=0 width=560 allowfullscreen></IFRAME>

[Little-Acorn]

The CRA did not cause the Financial Crisis. Sorry. That is fiction. There is no "smoking gun."


Much of the blame has to go to lack of oversight and regulation of the lending business during the previous administration.


Sounds like some people need a reminder of what really went on.

Forthwith:

(Reposted from 2008)

Have you seen the Special Report composed by Fox News, on the financial crisis? It's a hour-long show, and been broadcast several times. Someone has put it on YouTube, in six segments. Fox calls it "Saving Our Economy". Go to YouTube and do a search on that title, and you should get all six segments. They vary from 5 to 10 minutes each, about 45 minutes running time total (no commercials).

It's a GREAT explanation of how the crisis started, who did what, what the results were, etc. A real must-see.

Here's a summary:

-----------------------------------------

Sept. 23, 2008: Treasury Secretary Henry Paulson: "The events leading us here began many years ago, starting with bad lending practices by banks and financial institutions, and by borrowers taking up mortgages they couldn't afford."

-----------------------------------------

The Federal National Mortgage Association (FNMA, or "Fannie Mae") was created in 1938 during the Great Depression. to create a market for mortgages where they could be bought and sold.

In 1968, Lyndon Johnson and a Democratic Congress spun off Fannie Mae so that it would not show up in the Federal budget. But the Federal govt was always there, ready to bail out Fannie Mae if problems happened. This enables Fannie Mae to offer lower rates for the mortgages it bought, since it was not taking the risks that other banks and institutions had to. In 1970, the Federal Home Loan Mortgage Corporation ("Freddie Mac") was formed, to create competition for Fannie Mae, since ordinary banks could NOT compete with the government-backed rates they offered.

The Community Reinvestment Act (CRA) was passed by a Democrat Congress and signed by Jimmy Carter in 1977. It made sure banks were lending to people of all colors and income levels. But things quickly began going off the rails, as activist groups found a new weapon in the law: The could start suing lenders for discrimination if they didn't lend to enough minority families, regardless of the families' ability to pay the loans back as promised. Banks began making riskier and riskier loans for fear of having to fight expensive lawsuits.

Community groups began bullying the banks, especially one called the Association of Community Organizers for Reform Now ("ACORN"). It hired several specialized lawyers, including a young man named Barack Obama, to teach its employees how to go to the homes of bank CEOs and senior officers, harassing and publicly embarrassing them while remaining within the limits of local law to avoid prosecution. At one point, ACORN brought a lawsuit against a thrift merger in Illinois, insisting that the lending institutions had not made as many loans to minorities as ACORN thought they should. The bank replied that such loans would be financially irresponsible, and would put ALL the bank's customers at unacceptable risk. ACORN prevailed in court, and banks began making more and more risky loans to home buyers who could have never qualified for those loans under ordinary circumstances.

In late 2000, in the last days of the Clinton administration, the government ordered Fannie and Freddie to increase the numbers of these risky ("sub-prime") mortgages they were buying from banks and lending institutions across the country. They did, lowering their rates and buying more and more, until fully half their portfolios consisted of these risky sub-prime mortgages, combined and packaged in various ways.

The Bush administration raised red flags starting in April 2001. Their 2002 Budget Request declared that the size of mortgage giants Freddie Mac and Fannie Mae is "a potential problem" because financial trouble in either one of them "could cause strong repercussions in financial markets".

In 2003, the White House warning about Fannie and Freddie, was upgraded to a "Systemic Risk that could spread beyond just the housing sector".

As Fannie and Freddie continued to lower their rates and buy mortgages, lenders made more and more mortgages to buyers with questionable ability to pay, safe in the knowledge that they could immediately turn around and sell the mortgages to the government-sponsored Fannie and Freddie, thus avoiding any consequences if the loans were later defaulted. They were happy to make more and more such mortgages, collecting fees for each and selling the mortgages to F&F.

Countrywide Financial chairman Angelo Mazzillo literally started screaming at Wall Street Journal editor Paul Gigot, when Gigot asked him about the wisdom of making so many loans to buyers unlikely to pay them back. Mazzillo insisted loudly that Gigot had no idea what he was talking about, did not understand the first thing about mortgage lending, etc., etc. He failed, however, to answer any of Gigot's questions in even the simplest terms or explain why they were "wrong".

In Fall 2003, the Bush Admin was pushing Congress hard to create a new Federal agency to regulate and supervise Fannie and Freddie, both Government Sponsored Entities, or GSEs.

At a Congressional hearing on Sept 10, 2003, John Snow, Secretary of the Treasury stated: "We need a strong, world-class regulatory agency to oversee the prudential operations of the GSE's, and the safety and soundness of their financial activities."

At that same hearing, ranking member of the House Financial Services Committee Barney Frank (D-MA) defended his practices with regard to Fannie Mae and Freddie Mac: "Fannie Mae and Freddie Mac, are not in a crisis."

Frank said the Fed Govt should be encouraging F&F to do more to get low-income families into homes:
"The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up a possibility of serious financial losses to the treasury - which I do not see, I think we see entities which are fundamentally sound financially and can withstand some of the disaster scenarios - the more pressure there is there, then the less I think we see in terms of 'affordable housing' ".

The top executives at F&F began cooking their books, exaggerating their sales in their quarterly reports, so that the company officials could claim they had met their companies' sales targets, and thus collect huge salary bonuses. They were finally caught in 2004. Several of them stepped down, but none was every punished, or even charged. One of them, Franklin Raines, CEO of Fannie Mae, later gave financial and housing advice to the campaign of Presidential contender Barack Obama.

At a House Financial Services Committee Hearing on Feb. 17, 2005, Alan Greenspan warned against one of the fundamental ideas of modern liberalism, the idea of putting all our eggs in one basket by concentrating financial activity into just a few big agencies in central government: "... Enabling these institutions to increase in size - and they will once the crisis in their judgment passes - we are placing the total financial system of the future at a substantial risk."
He later added at another hearing on on April 6, 2005: "If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis."

Senator Charles Schumer (D-NY) ignored any possibility the F&F might be in trouble at that hearing, and simply pointed to the advantages some people had gotten from the government's activities: "I think Fannie and Freddie ... are an intrinsic part of making America the best-housed people in the world... if you look over the last 20 or whatever years, they have done a very, very good job."
Schumer also complained, "Things are good in the housing market. Why are people entertaining radical change?"

On April 7, 2005, Treasury Secretary John Snow warned again: "These large portfolios, unchecked in their growth over the last decade or so, pose a real problem." The Senate Banking Committee adopted strong regulation that would have prevented Fannie and Freddie from acquiring these bad mortgages. All of the Republicans on the committee voted for it, and all the Democrats voted against it, and it passed out of the committee on a straight party-line vote. But Democrats then filibustered the bill on the Senate floor, preventing it from being brought to a vote.

Freddie Mac and Fannie Mae was active in making campaign contributions to politicians, from money that ostensibly was for low-income mortgages. The top two recipients were:

Christopher Dodd (D-CT): $165,000
Barack Obama (D-IL): $126,000

The highest-receiving Republican was Bob Bennett (R-UT), who got $108,000. Further down the list was John McCain (R-AZ), who accepted $25,000.

On May 25, 2006 in the Senate, John McCain (R-AZ) sounded more warnings over the huge size and lack of discipline in the government companies, and sponsored a bill to regulate the companies more firmly: "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac... and the sheer magnitude of these companies and the role they play in the housing market... the GSEs need to be reformed without delay." McCain's bill was voted out of committee on a straight party-line vote: All Republicans voted for it, and all Democrats voted against. Democrats then announced they would filibuster the bill in the Senate, as they had the previous year's regulatory legislation. Republicans knew they did not have enough votes to achieve the 60% needed, and so never brought the bill to the Senate floor.

By the beginning of 2008, Fannie Mae and Freddie Mac had bought up over $4 trillion in mortgages, roughly one-quarter of which was risky sub-prime mortgage paper. With interest rates rising, these rickety homeowners started defaulting on their loans. Only about 2% of them defaulted by January 2008, but the effect was disastrous. Banks began to get leery of lending money to each other, knowing that their fellow banks held substantial assets that might default and become worthless, thus making the banks unable to pay back their loans to each other.

Banks and lending institutions began collapsing or seeking emergency help: Countrywide Financial, Lehman Brothers, insurer AIG, Bear Stearns, IndyMac bank, etc. buckled to their knees as paralysis spread. The huge numbers of risky subprime mortgages, had become like a "poison pill" that choked the institutions that had swallowed them. The Fed finally took over Freddie Mac and Fannie Mae, but the damage had long been done.

Congress appropriated nearly $1 trillion in emergency funds to loan to, or otherwise prop up, failing financial institutions. But none of the original legislation that had spurred decades of risky lending, has been repealed in all the "bailout" frenzy, and there are no bills pending to do so.

[CSM]

Thanks La for the reminder. I find it really interesting that the dems who inspired and nurtured this mess simply walk away with smug little grins thinking they have done a good thing somehow. The devestation they leave in their wake is ignored entirely or used as propaganda.

[Little-Acorn]

Thanks La for the reminder. I find it really interesting that the dems who inspired and nurtured this mess simply walk away with smug little grins thinking they have done a good thing somehow. The devestation they leave in their wake is ignored entirely or used as propaganda.

As usual.

There are still leftist fanatics who are actually PROUD of the New Deal of the 1930s, which accomplished a few small good points but devastated the entire economy and kept it devastated for more than ten years.