While I still don't know what the solution is, I do know what the original sin was that caused the current mess. Democrats. In particular the Jimmy Carter Community Reinvestment Act of 1977. This act was greatly expanded by Bill Clinton in 1994. And it was the Democrats in general and Barney Frank (D-MA) and Chris Dodd (D-CT) who killed several pieces of legislation which might have prevented today's mess.
President Bush, Senator John McCain, Chairman of the Fed Alan Greenspan all warned of this crisis in 2003, 2005 and 2006. Other warnings go back to 1999. These warnings were ignored by the Democrats. Not only where they ignored, the public statements of Frank, Dodd and other Democrats assured us nothing was wrong with the system. There was no impending Financial Crisis.
Confirming these observations is this article The Financial Mess: How We Got Here.
The Community Reinvestment Act was pushed hard by Bill Clinton, although it originated under Jimmy Carter. Asked about it the other day on one of the morning TV talk shows, Clinton said times back then were different. Fannie and Freddie had lots of money and he (in his infinite wisdom) decided that the money should not go to share holders or to executive compensation, but should be used to put the poor into homes.Notice that a Politician (Clinton) decided that the Government is in a better position to know what to do with lots of money. How many times has this idea worked in the past? Remember what Ronald Reagan said were the most terrifying words anyone could ever hear - "I'm from the Government, and I'm here to help."
As you can imagine, wonderful things happen when the government strong arms corporations as to how they should spend their money and, better yet, how they should assess the qualifications of home buyers. So the country's biggest buyers of mortgages were pressured into lowering the qualifications of applicants, in order to increase the percentage of poor that got mortgages. By 2006, 30% of all mortgages went to people who in any other circumstances wouldn't qualify.Ask anyone who is familiar with the Banking Industry, what a low CRA (Community Reinvestment Act) score did to their business. The Clinton administration aggressively pursued Financial Institutions who did not make enough or the "right kind" of mortgage loans, to the point the Financial Institutions went begging for the 30% of buyers, who under good Financial Practices of Prudent Accounting Guidelines, did not qualify for mortgages.
Now the political left would like you to know that the CRA-controlled institutions did not lend the largest percentage of sub-prime mortgages. But that's information by deception, because the mortgage business is a competitive business. If the government strong arms one part of the business, the other part will respond. And strong arm was what the Clinton administration did, even using the Office of the Comptroller of the Currency to pressure banks to lend more money to the disadvantaged. Caught in the act, a spokesman for the office noted that its abuse of power was "for the best of intentions:" the same inclination used to pave the road to hell.While the Real Estate Market was growing and values increasing, the subprime, CRA mandated mortgages worked.
In the short run, all sorts of money was to be made by lowering standards and processing sub-prime loans for the poor. The Wall Street Journal raised concerns about Fannie's and Freddie's capital requirements. Senator Phil Gramm (R, TX) raised issues about community pressure groups, such as Barack Obama's ACORN, extorting money from banks by holding their feet to the CRA fire, and threatening to militate against mergers and acquisitions unless the banks entered into preferential agreements with community groups. [emphasis mine]Community Groups like the Local ACORN organization in Chicago for whom Senator Obama was their Legal Council and who have a decades long history of voter registration FRAUD and CORRUPTION. The Gramm-Leach-Bliley Act forced ACORN to reveal its relationship with banks and mortgage institutions.
Freddie Mac and Fannie Mae made other uses of "lots of money", besides backing subprime loans.
Fannie and Freddie became big contributors to the Democratic Party. The sub-prime business paid off-at least while the bubble was growing. And the Kerry, Hillary and Obama campaigns have numbered among the leading recipients of the largess of the two mortgage lenders. [emphasis mine]And they also made huge "Golden Parachute" payments to CEO's. Fannie Mae made payments to disgraced CEO Franklin Raines.
Franklin Raines, the Fannie Mae C.E.O. from 1999 to 2004, had been budget director in the Clinton administration. The left would not like you to be reminded that Raines has been a consultant to the Obama campaign, according to the Washington Post, and that Freddie and Fannie number among the top 5 contributors to Obama's run for the presidency. Raines is being sued for the recovery of 50 million in compensation acquired by the alleged manipulation of Fannie's books. Now, that's not change we can believe in. That's Washington as we have come to know and "love" it.And now we hear that the Democrats, Particularly Speaker of the House, Nancy Pelosi, Senate Majority Leader Harry Reid and Senator Obama are outraged at "Golden Parachute" payments. It's time for a Reality Check. The same Democrats who let it happen, no actually insured the Credit Crisis would happen, who now complain the loudest. Where were Nancy, Harry, Barack, Barney and Chris when the Republicans were sounding the alarms?
The Bush administration in 2003 tried to change the system, to no avail. Congressman Barney Frank, (D, MA ) was in the forefront of stopping the Bush proposal to take control out of Fannie and Freddie and put it into a third overseeing organization. Frank too has emerged in the current crisis as one of the major critics of the administration.And ...
Former Federal Reserve Chairman Alan Greenspan continued to raise the alarm over Fannie's and Freddie's weak capitalization. His concerns were ignored.And ...
Former Congressman Michael Oxley (R,OH), then chairman of the House Financial Services Committee and co-author of the Sarbanes-Oxley Act, introduced a bill in 2005 in response to the growing problem, but Fannie and Freddie put their lobbyists to work and the bill died.Senator Dodd (D-CT) continues to try to place the blame on President Bush. It happened on Bush's Watch. Well, who was on watch when the warnings were made by the Republicans?
After all, the Bush administration in 2003 and Senator Phil Gramm even earlier, in 1999, had been working to change the system. Dodd, like Obama, has been a big recipient of campaign funds from Fannie and Freddie, organizations that Dodd oversees. Dodd has apparently been more consumed with campaign contributions from the mortgage giants than the responsibilities of oversight.Placing blame on the CRA requirements was not the sole cause of the present Credit Crisis, but it is the original and underlying cause. When you next hear that it's the Republicans who caused this crisis, remember the facts and that the Democrats passed CRA and Stopped attempts to correct the problem.