What just happened to the economy had basically nothing to do with the CRA. Basically, Wall Street got greedy, ran out of “crap” to sell, so they bundled new forms of crap. Government sat on its butt and let it happen. Here are three links. The first two by Wall Street insiders who tell how the deal went down. (Including the “Wall Street ran out of crap” part). The third are the 25 people most to blame for meltdown.
http://www.npr.org/templates/story/story.php?storyId=102325715
Well, two links. I will send you the third.
parsy, who says the poor weren’t to blame for the meltdown
” so they bundled new forms of crap.”
Yes, but it was the pressure by Clinton & then Bush to lower lending standards to increase minority home ownership that lead to overall standards being corrupted and the creation of a sub-prime market which turned toxic.
“Darrin West could not believe it. The president of the United States was standing in his living room.
It was June 17, 2002, a day Mr. West recalls as “the highlight of my life.” Mr. Bush, in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.
Mr. West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment — just the sort of creative public-private financing Mr. Bush was promoting.
“Part of economic security,” Mr. Bush declared that day, “is owning your own home.”
A lot has changed since then. Mr. West, beset by personal problems, left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across America, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr. Bush’s tour.
“I just don’t think what he envisioned was actually carried out,” she said.
Park Place South is, in microcosm, the story of a well-intentioned policy gone awry. Advocating homeownership is hardly novel; the Clinton administration did it, too. For Mr. Bush, it was part of his vision of an “ownership society,” in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters.
But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.
So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.
Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs...
And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.”
http://www.nytimes.com/2008/12/21/business/21admin.html?pagewanted=3&_r=1
There’s a nice succinct summary here by Chairman of Blackstone Group, Stephen Schwarzman (although I think it actually started in the mid 90’s with Clinton encouraging lower lending stds):
“It’s a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn’t have been borrowing.
Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.
When they started defaulting, out of bad luck or bad judgment, we implemented fair value accounting….You had wildly different marks for this kind of security, which led to massive write-offs by the commercial banking and investment-banking system.
In the face of those losses…you needed to raise new equity…which came from sovereign-wealth funds in part, which then caused political resistance to sovereign-wealth funds, who predictably have withdrawn from putting money into the system….It seemed pretty obvious that would happen. We now find ourselves with a liquidity crisis where fundamentally the cost of money for financial intermediaries [such as investment banks] is significantly in excess of their cost of lending it. So several institutions found themselves in a structurally impossible position. We had a series of bankruptcies, whether Bear Stearns or Lehman, or forced sales like Merrill. Goldman reverted to a banking charter for a lower cost of funds, which today is still not low enough for the business.
So that’s the story of how we got there.”
http://blogs.wsj.com/deals/2008/09/24/wall-street-crisis-stephen-schwarzman-explains-it-all/
Years ago, McCain and President Bush called on Congress to reign in Fannie and Freddie EVERY democrat voted NO.