Posted on 09/23/2008 10:47:24 PM PDT by Kaslin
For those looking for a real start to today's financial meltdown and government rescue, you need to go back — way back — to 1977, and the Jimmy Carter presidency.
It was then, for the best and purest of reasons, that well-meaning Democratic members of Congress brought the Community Reinvestment Act into being.
The main idea, as the late Democratic Sen. William Proxmire said on the Senate floor in 1977, was "to eliminate the practice of redlining by lending institutions."
That term — "redlining" — seems quaint today. But in the 1970s, it was widely seen as the cause of housing disparities between white and black Americans.
The redlining theory went thus: Banks set up shop in low-income areas, took deposits, then lent the funds to richer areas — leaving poor and minority communities starved of housing and capital.
President Carter, a reformist former governor from the racially aware "New South," embraced the 1977 CRA as a way to end the supposed practice of redlining.
Coming as it did just years after other major civil rights legislation — including the 1964 Civil Rights Act, the Fair Housing Act of 1968 and the Equal Credit Opportunity Act of 1974 — community activists and others viewed it as essential to bringing African-Americans into the American dream.
At the time, the U.S. was in the middle of what came to be known as stagflation. After the first oil embargo in 1973 sent prices spiraling upward, the economy struggled to emerge from a vicious two-year recession in 1974 and 1975.
(Excerpt) Read more at ibdeditorials.com ...
Yea, but it’s still Bush’s fault according to Pelosi.
Compassion Liberalism: Give a drunk a bottle.
GWB-2002
Bump to read later
“The redlining theory went thus: Banks set up shop in low-income areas, took deposits, then lent the funds to richer areas — leaving poor and minority communities starved of housing and capital.”
What an intellectually lazy way to look at things. It doesn’t matter where banks set up, they’re going to lend money to people they think are going to be able to make them a profit. It wouldn’t matter where black people with bad credit deposited their savings, they’re not going to convince responsible lending institutions to risk defaults. This sounds as plausible as “gentrification,” or the theory that businesses conspired against blacks to keep them crowded and poor. If you want to find a reason that blacks underperform compared to whites (etc.), socialists, look to welfare!
The fact that politicians allowed themselves to treat credit expansion like it’s a civil rights issue proves how little they have bothered to understand of economics.
Somehow, I knew this clown was ultimately responsible. :-)
The real cause for the disparity was that lower incomes and poorer credit ratings for blacks led banks to conclude that they were higher credit risks. So the banks did not lend to them as much. It is really that simple.
Actually, you can go back to when the U.S. abandoned the Gold Standard.
It’s a complicated debacle but one thing is clear: Banks and lending institutions were politically pressured into offering subprime mortgages to people who had no credit and were not even required to verify such basic things as income, employment history, or savings. As a result they were literally given an “open door” policy. Fannie Mae and Freddie Mac were quasi-public and quasi-private institutions and we got the worst of both worlds. On paper, these mortgage institutions showed great assets based on real property value during the housing boom. That’s how the executives could give themselves big salaries, bonuses, and ‘golden parachutes.’ But with mortgagees unable to make their payments and the collapse of the housing market the inevitable day of reckoning came and Freddie Mac and Fannie Mae had to admit they has NO real assets but tons of worthless paper. It’s outrageous that today some of the biggest and loudest finger-pointers - like Chris Dodd and Barney Frank - were instrumental in creating this disastrous scam. Hey! Do you want a second or third mortgage, FReepers? Well you’ve got one. That 700 billion is coming from us in higher taxes!!
Were they pressured into providing NINJA loans to house flippers?
“Regulators didn’t need to do much policing; they let that job fall to radical community groups, such as ACORN and NACA, which siphoned literally billions of dollars from banks and lent the money in poor communities.
It wasn’t entirely altruistic.
The community groups booked thousands of dollars in fees for every loan. And loans often required recipients to become active in radical causes — what’s today called “community organizing.”
If a community group decided a bank was operating in bad faith, it could affect the bank’s “CRA rating” — the scorecard for how well it was doing as a minority lender.
Banks became pliable, easy targets. No bank CEO wanted to be mau-maued as an enemy of the poor. They became shakedown targets, channeling billions of dollars to groups that had, at best, meager results to show for it.
That’s how it began. Later, in the Clinton era, Fannie Mae and Freddie Mac got involved — buying up bad loans from banks, and securitizing them for sale on world markets. The seeds of the subprime meltdown were planted.”
Woo hoo!! Someone finally prints the truth!!
Great post.
Logic and restraint are not used in political circles, just re-election to keep the cocktail parties, dinners and lobbyist junkets coming all while taking a taxpayer-funded Lincoln Towncar to the Capital every morning. Did I mention the lifelong salary, benefits and healthcare? Did I mention the huge vacations?
It is insanity and it will take a revolution to get the maggots out; seal the borders; cut 50% of government; place a fair tax on the taxpayer and end the Liberal garbage that permeates society.
I can be politically incorrect and not pander to anyone since I don’t need any votes or public approval. Let’s call a spade a spade. This was a blatant attempt to put minorities into housing they clearly couldn’t afford for political benefit. The politicians and the people at Freddie Mac and Fanny Mae had a hell of a good time and ride on the Titanic until the iceberg of reality struck. Now we’re doing the bailing.
Of course that's part of the problem, but did the CRA require banks to hand out mortgages of $300,000 or more? I have a strong suspicion that the real problems aren't triggered by semi-honest mortgages to minorities who couldn't quite afford them, but rather by mortgages to speculators who had no real assets or income.
bigbump
Very interesting observation. Let me share the pain and tell you how I was hurt. I’m an ultra-conservative politically and financially. I admit I’m a coward when it comes to the stock market so I have/had CD’s in several banks. As you know, CD’s are backed by the FDIC and the full faith and credit of the United States. Three of those banks went under. One was the infamous Countrywide but I lucked out because Bank of America took them over. Close call! Another was IndyMac. I thought I wouldn’t be affected. BUT what I discovered was that my CD’s went from 5.2% APY to 2.1 in 24 hours! - because that’s was the Federal Reserve’s arbitrary decision. Another is Washington Mutual which right now is on life-support! My point is that with the growing number of failing banks there’s going to be a complete collapse of confidence. And many people depend on CD’s and their “guaranteed” returns for retirement, future expenses, etc. Right now the best economists and financiers are talking about the very real possibility of a freeze on virtually ALL credit. Others are saying that, bad as things are now, we havn’t even begun to feel the real crunch which could last years. I admit I’m scared! Regards,
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