There are so many threads on this topic and search is not working (again)- not sure if I can pick through and find the one with comments regarding Clinton’s part (or not) in this mess. I received the below forwarded e-mail from an annuities broker friend of mine, and I’m not quite erudite enough on this topic to be able to discuss with her the complexities of this situation. This particular article, in hindsight, seems pretty damning, but I expect it isn’t quite as simple as all of this? I know I’ve heard a lot of commentary regarding the role that loosening of regulations played in this mess. Wondering how I can sew up (or if I can sew up) a good response that she should know it isn’t quite as simple as this article suggests…or is it?
I believe the Clinton administration did sign the bill that authorized ‘sub-prime’ mortgages, and also pushed for other measures to increase the number of mortgages that were available.
However, the Clinton Administration in its last couple of years also started issuing the same kind of warnings about the risk of a Fannie/Freddie collapse that the Bush Administration continued warning about for at least the last 7 years.
The fault lies with Congress. They write the laws. They have the oversight committees. Both Bush and Clinton’s Treasury Secretaries did their jobs and warned Congress repeatedly that there was a problem. Congress did nothing. The preponderance of the blame lies with the Democrats, since the whole Fannie/Freddie mess is really part of their experiment in social engineering. But the Republicans played along as well. At least, enough of them did that the Democrats have cover to call it a bipartisan problem.
As Sam pointed out in numerous threads this problem indeed has it’s roots going back to the Clinton Administration. I agree with Sam that the majority of the fault lies with Congress (both Dems and Pubs) for initiating this and then allowing it to go on.
It’s funny that now that things are falling apart everyone seems to see, in retrospect, how bad the whole idea was. And they all want to blame the financial institutions and greedy business folks who took advantage of the situation created by our government. To be sure, they were short sighted and even stupid in a lot of cases…but the fault ultimately lies with the folks who created the structure that allowed this situation to begin and perpetuate…and who even pushed it forward for what were (seemingly) good and noble reasons…putting everyone in a house of their own, whether they could afford it or not. Unintended consequences and the road to hell paved by good intentions…
-XT
I watched Reagan give a speech in which he said , we need to get the foot of regulation off the neck of business. I was disgusted because that is the function of government, to reign in the excesses that the business and financial institutes will do ,if not closely watched. The difference has always been philosophical. The repubs believe ,stupidly. that business is self correcting. They are all for gutting every regulator and oversight group. All will be well if you leave the thieves alone.
The dems have been a peoples party, looking out to some degree for the less fortunate. . They have tried to maintain the interests of the people in the face of wealthy and powerful corporations,
Unfortunately business won. The cost of elections has grown so much that both parties are submissive to those who have the money. It has jeopardized the system . Most people are turned off to politics because they know their power is gone.
The problem was not Clinton. It was that nobody could maintain power and stand up to business. Clinton caved.
Fannie and Freddie are not responsible for the mess. It includes mortgages of all levels. The home loan business was stripped of almost all regulation. No money down. Over 100 percent loans. Fake work records. Adjustable rate mortgages. Lenders in cahoots with the home assessors. Interest only loans for the first 7 years. These are what should not have been allowed. Fannie and Freddie helped marginal people get loans. That is their contribution.
Ask Michelle Bachmann of Minnesota what she thinks the problem is…loans to minorities.
While it is true that a large portion of the Progressive movement is made up of fuzzy-thinking, dewy-eyed Pollyannas and feckless “do-gooders”, you should not overlook those of us who burn with inchoate rage and dark envy for everything that is good and holy about America.
If only we had a political party that gave due attention to the advice and input of the financial sector, men whose hard-headed realism and firm avoidance of vague dreams of “progress” and “equality” might have saved us! If such men were organized around a political philosophy and a party to promote it, why, they might even have been elected, even, perhaps, re-elected. With their stern hand at the tiller, all of this might have been avoided, if they had sufficient time and power to reverse the dreadful damage of the wild-eyed Clintonistas and their radical lefty agenda.
Alas.
Truly…alas that we don’t have such a party. Instead we have two parties who may mouth different things but pretty much do the same thing when it comes to their actions. Alas for poor Boromir…
-XT
Cite?
How is it that Republicans had control of the whole government (Executive and Legislative) and ignored warnings from Bush and the Treasury to stop some program that Republicans as a group despise anyway?
And how is it that removing regulations forced banks to design complex and predatory mortgages?
And how is it that government was forcing the lenders to give painfully inappropriate loans?
And why did the credit ratings agencies rated these risky investment vehicles as hunky dory?
I am not saying that Democrats don’t have blame aplenty in their laps. All of Congress does but I am having a hard time seeing where the Republicans were begrudgingly led into all this against their will.
From my understanding, the cause of the problem is not that they were offering sub-prime loans to lower income people, but that they were repackaging these loans as being lower risk than they were to re-sell the debt to people who did not know they were buying debts that were high-risk, and because they lacked oversight and were allowed to do this for great profit, lenders were encouraging people to get sub-prime loans who did not need them, i.e. middle and upper-middle class people just wanting to refinance existing homes or people wanting to flip homes for profit.
It might be good to mention that Clinton signed a bill that did what it was intended to. It got lower income people into homes. The problem here isn’t the poor, they are largely paying their bills. It’s the middle class+ that’s trying to flip houses and make a quick buck or guys who took out a second mortgage, intended to refinance and got over their heads when their property bottomed out.
[anecdote]I knew a guy with three nothing down mortgages on houses he was trying to rent. He also owned his own home. Look at it from his point of view, now that he owns three houses that are worth less than the mortgages on them, why should he keep paying the mortgages? He was expecting to refinance after their value skyrocketed so now it’s go bankrupt or default on the mortgages.[/anecdote]
Seriously, this is congresses fault. And congress has been controlled by the republicans who loathe regulation. And amazingly it required *more *regulation to fix this.
So that e-mail is a hunk of bullshit.
Also, Phil Graham deserves more blame for this than anyone else I can think of. This problem is about more than loans defaulting.
I will agree that Clinton was at fault for signing the bill repealing Glass-Steagall. Does that count?
As for the root of the problem being encouraging home ownership for minorities, does anyone have any statistics on the default rate under this program vs the market as a whole, corrected for income? I’d suspect people who bought houses 10 years ago, on a fixed rate mortgage, and who didn’t play games with refinancing with ARMs or home equity loans, would be in excellent shape today.
Let’s have some numbers, please.
Hmmm. That article seems to do a pretty good job of debunking the claim. It makes the following points (cites taken directly from article):
a. Laws designed to open opportunities for equal access to credit does not require banks or thrifts to make loans that are unsafe or unprofitable. In fact, laws like the CRA mandate exactly the opposite. The law stipulates that CRA lending activities must be done consistent with safe and sound banking practices.
b. Additionally, research clearly shows that the majority of the predatory loans that have led us to this financial mess were originated by non-bank financial institutions and other entities that did NOT have a CRA obligation and lacked strong federal regulatory oversight.
You forgot
Why did CRA force banks to make loans with no documentation?
I don’t know for sure how CRA works, but my daughter and her boyfriend got a subsidized apartment in Portland last year, and they had to submit about 3 times as much documentation as for a normal one. Typically you have to document your poverty up the wazoo.
These kinds of loans predate the crisis, since they have a purpose, but I don’t see how the government made industry overuse them.
I suspect I’m misunderstanding you, so give some clarification here.
Are you suggesting it’s the fault of homeowners selling to anyone who will buy? Because ensuring the person capable of paying is the bank’s responsibility, not the homeowner’s.
The CRA has a mechanism that allows a bank to be sued if it ‘discriminates’ against certain applicants for loans. Barack Obama sued Citibank under the CRA for not providing such a loan.
The claim is racial discrimination, but I’d like to see the particulars of why the bank didn’t want to lend to these particular people. In any event, the existence of a mechanism for such lawsuits, coupled by an easy way for banks to protect themselves through Fannie/Freddie, seems likely to bias the banks towards approving a lot of loans they otherwise wouldn’t approve.
And really it doesn’t even matter if low-income people are the problem. The problem is the regulation that was put in place ostensibly to help poor people, but which wound up being hijacked by wealthier people. Don’t blame the poor - blame the law.
No, I’m pretty sure he means people who bought a house that they could not afford with the assumption that they could sell them quickly and easily at a higher price, and are now acting all shocked to learn that investments come with risks and housing prices can fall.
And I agree. The people I know who are in big trouble are not the people who finally managed to buy a house in the neighborhood. It is middle class people who figured they could move in to a five bedroom house with granite counter tops in a new development. The people who have refinanced multiple times and have nothing to show for it. My hometown of 150k houses sprung up piles of huge houses with half million dollar price tags, and I promise you our wages didn’t go up that much. People were buying shit they couldn’t afford, and it wasn’t the poor people.
Interesting article by Stanley Kurtz, which shows how ‘community organizer’ groups like ACORN used the CRA to strong-arm banks into giving out questionable mortgages:
Well…your cite really does not prove anything one way or another. This is what was alleged:
“Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories.”
So racial discrimination. If the bank gave Whiteman a loan but not Blackman a loan who otherwise were identical on paper (financially) then that is against the law as well as wrong and I think you would agree with that.
Looks like the case was settled so we will never know if the allegation was born out by the facts.
And yeah…of course the government insurance was there to push banks to make loans they otherwise wouldn’t. There should still be a risk assessment on the part of the bank. They were in no way asked to give mortgages to eternally unemployed deadbeat. Just people who were riskier but still more likely than not to own up to their obligations. And that worked for many years till the lenders saw fit to loan to eternally unemployed deadbeat (and no one said boo about it).
Then turn around and bury the shitty loans in CDSs and make all those ugly loans get lost in the mess and transfer the risk away from the people who wrote the shitty loans in the first place. It is here where the real tragedy occurred. Someone should have pointed to those bundles and said the Emperor has no clothes…instead the ratings agencies and markets continued the fantasy and here we are.