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The Financial Mess: How We Got Here
American Thinker ^ | September 29, 2008 | Abraham H. Miller

Posted on 09/29/2008 6:02:24 AM PDT by vietvet67

"How can you vote Republican when they so messed up the economy?" a liberal friend screams at me with such vehemence that I had to put the phone a full arms length from my ear.  Of course, my friend never heard of the Community Reinvestment Act.  He is one of those mindless liberals who thinks that George Bush and the Republicans are responsible for everything from Global Warming to Hurricane Katrina to the attempted genocide of the entire black population of New Orleans. 

He claims to be informed but he doesn't remember those dire warnings going back nine years ago that the Community Reinvestment Act would eventually cause a major financial and banking crisis in this country.   

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. 

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.

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.

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.

The Gramm-Leach-Bliley Act cut down on CRA reporting requirements and upped the ante for groups such as ACORN, forcing them to disclose their relationships with local banks.

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.

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. 

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. 

Former Federal Reserve Chairman Alan Greenspan continued to raise the alarm over Fannie's and Freddie's weak capitalization.  His concerns were ignored.

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.

Democratic Senator Chris Dodd, who is now Chairman of the Banking Committee and who appears along side  Majority Leader Harry Reid on television to discuss the current bailout negotiations,  has had harsh words for the Bush administration for its alleged role in the crisis.

But the rest of us should have some harsh words for Senator Dodd.  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.

When I point out the long trail of  Obama's  corruption stretching back to his days in the Illinois legislature, my liberal friends invoke moral equivalence, "They're all corrupt." 

There is no shame among the left.  When they think Bush is responsible for the collapse of the banking system, they scream at you.  When you point out that the Community Reinvestment Act created a pattern of abuse that now threatens the entire financial system, without hesitation liberals say, "They're all corrupt."

The Federal Deposit Insurance Corporation even has a web site so you could see how well your bank is meeting its obligations under the CRA.  Those of you who had  money in Washington Mutual, which just went belly up, will be happy to know that WaMu, over the five individual reporting periods, had almost exemplary ratings on its commitment to CRA. That should give WaMu depositors great joy, to compensate for the financial mess they may be in.  If WaMu had been less responsive to the CRA and more responsive to the market, maybe it wouldn't be insolvent.         

I am not suggesting that the CRA by itself led to the current crisis, but the CRA was the first and most important part of the food chain.   The CRA caused the expansion in the number of questionable loans that lending institutions made, but Wall Street and insurance underwriters were all to willing to package these loans, enhance their ratings through convenient exercises in fantasy, sell them, and insure them with reserves that were more inadequate than the incomes of the people who got the loans in the first place..

The best thing that can emerge from the current financial crisis is the realization that the government needs to stop directing economic decision making.  In a sense, the government is putting out a fire it started when it both created the CRA and assessed lending institutions by how well they were doing in response to the program. When Clinton decided, in his usual arrogance, that he knew better than the market how banks should lend money, the seeds were sown for the current financial disaster.

If you want to blame Bush for the current crisis, it might make you feel good, reinforce your sense of how the world works, enable you to find a meeting of the minds when you next engage your liberal friends over wine and quiche, but like so many things you believe and which make you feel good, it has no correspondence to reality.  

Abraham H. Miller is emeritus professor of political science, University of Cincinnati.


TOPICS: News/Current Events
KEYWORDS: bailout

1 posted on 09/29/2008 6:02:25 AM PDT by vietvet67
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To: vietvet67

This was brilliant. I will be using this at work today.


2 posted on 09/29/2008 6:12:12 AM PDT by Volunteer (Just so you know, I am ashamed the Dixie Chicks make records in Nashville.)
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To: vietvet67
None of this will ever be heard if republicans support a bailout that appears to payoff their rich thieving buddies. How can Bush do this to his party?? What does McCain think this would do to him? McCain is a coward if he doesnt take a stand on this and he will deserve to lose, God help us!
3 posted on 09/29/2008 6:13:02 AM PDT by sickoflibs (Biden :"Patriotic=you taxed MORE to fund our promises of more handouts for votes.." ,)
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To: vietvet67
By 2006, 30% of all mortgages went to people who in any other circumstances wouldn't qualify.

This is the first time I've seen that number.
Astounding.
4 posted on 09/29/2008 6:15:51 AM PDT by ComputerGuy (HM2 USN M/3/3 Marines RVN 66/67)
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To: vietvet67

Absolutely brilliant and should be shown around the world! This bailout cannot help a thing long term if the underlying causes of the problem are not addressed.


5 posted on 09/29/2008 6:21:36 AM PDT by sheikdetailfeather (STOP THE BAIL OUT NOW!)
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To: vietvet67
I am not suggesting that the CRA by itself led to the current crisis, but the CRA was the first and most important part of the food chain. The CRA caused the expansion in the number of questionable loans that lending institutions made, but Wall Street and insurance underwriters were all to willing to package these loans, enhance their ratings through convenient exercises in fantasy, sell them, and insure them with reserves that were more inadequate than the incomes of the people who got the loans in the first place.

Prof. Miller should stick to politcs, which he knows, and let others speak to the origins of the current malaise.

It's so easy to place blame on Wall Street and bankers and Fannie and Freddie and Congress and CRA, and they all had a role to play for sure.

But you can't make loans without first having the money, and the excess money came from the Fed. The single individual most responsible for the bubble (although not for its being popped) is Alan Greenspan.

6 posted on 09/29/2008 6:24:08 AM PDT by logician2u
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To: vietvet67
Just the facts mam, just the facts

Linky Thing: Burning Down the House
Linky Thing: Timeline - Fox News
Linky Thing: Excerpts from Congressional Hearings

7 posted on 09/29/2008 6:25:53 AM PDT by tx_eggman ("The urge to save humanity is almost always a false front for the urge to rule" - Mencken)
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To: sickoflibs

Let us not blame Mr. McCain for this mess and his vote. He did not start it and so whatever he does to make it better, we need to support him.

On the other hand, Obaama’s thinking, philosophy, and operations are build on CRA concepts. He is the one who needs to be stopped for the sake of this country.

I wish, President Clinton will stand up and take the blame and responsibility for putting in place a CRA program and philosophy throughout the political/business establishments.

I wish he would also stand up and say Mr. McCain’s opposition to this throughout his career shows he is a great man.


8 posted on 09/29/2008 6:33:19 AM PDT by indianyogi
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To: vietvet67
Great post! One of the questions that isn't being asked is, what happens to property tax bases now that homes are being devalued? Municipalities, counties and states are all reliant for property taxes for inflated budgets based on sky-high property evaluations. Even if your community has managed to keep property taxes low, probably not all communities in your county or state have done the same. This housing mess in a nightmare for schools and local governments throughout the country.
9 posted on 09/29/2008 6:43:40 AM PDT by madinmadtown
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To: vietvet67

http://www.freerepublic.com/focus/news/2083123/posts?page=50

http://findarticles.com/p/articles/mi_m1282/is_n25_v45/ai_14779796

http://www.freerepublic.com/focus/f-news/1965239/posts
http://www.ibdeditorials.com/IBDArticles.aspx?id=306978378974502
http://www.ibdeditorials.com/IBDArticles.aspx?id=307149667289804&kw=cra
http://www.freerepublic.com/focus/f-news/2088795/posts
http://www.americanthinker.com/2008/09/the_financial_mess_how_we_got.html

I’ve added this one to my collection.


10 posted on 09/29/2008 6:46:05 AM PDT by rockinqsranch (Dems, Libs, Socialists, Call 'em what you will, they ALL have Fairies livin' in their Trees.)
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To: madinmadtown
One of the questions that isn't being asked is, what happens to property tax bases now that homes are being devalued? Municipalities, counties and states are all reliant for property taxes for inflated budgets based on sky-high property evaluations.

The property taxes are prorated among all the properties no matter what the FMV value is, at least in Iowa. I would suspect the libs have done this throughout the nation.
11 posted on 09/29/2008 6:50:01 AM PDT by PeterPrinciple ( Seeking the truth here folks.)
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To: indianyogi

RE “so whatever he does to make it better, we need to support him.”

I will NOT support him trying to get elected at the expense of house republicans. Even if it worked we would have McCain with democrat supermajority. How can republicans oppose any spending if they support what looks like a bailout of republican rich buddies? They will either have to support all welfare spending or be tarred as Obama says, only caring for the rich. If McCain loses, and now that is very likely short some foreign crisis, this is a hell of a lot of power to hand to democrat majority, and shooting house republicans in the head will make it worse.


12 posted on 09/29/2008 6:59:42 AM PDT by sickoflibs (Biden :"Patriotic=you taxed MORE to fund our promises of more handouts for votes.." ,)
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To: vietvet67
and all these conditions remain intact while we put hundreds of billions toward a rescue plan - a plan whose major players include dodd and frank
13 posted on 09/29/2008 7:07:47 AM PDT by sloop (pfc in the quiet civil war)
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To: vietvet67
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.

This bothers me. At that time we control all three branches of government. Why can't we fix this? Bill was able to create much of these problems even when we controlled congress:

Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin's Treasury Department to rewrite the rules in 1995.

How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable

If Bush did not have the support to fix this even with a Republican controlled congress why wasn't he able/willing to rewrite the rules like Bill did?

14 posted on 09/29/2008 7:08:15 AM PDT by TruthWillWin
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To: vietvet67

bump


15 posted on 09/29/2008 7:15:27 AM PDT by VOA
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To: Volunteer


http://www.nypost.com/seven/09292008/postopinion/opedcolumnists/os_dangerous_pals_131216.htm?&page=1

ONE key pioneer of ACORN's subprime-loan shakedown racket was Madeline Talbott - an activist with extensive ties to Barack Obama. She was also in on the ground floor of the disastrous turn in Fannie Mae's mortgage policies. Long the director of Chicago ACORN, Talbott is a specialist in "direct action" - organizers' term for their militant tactics of intimidation and disruption. Perhaps her most famous stunt was leading a group of ACORN protesters breaking into a meeting of the Chicago City Council to push for a "living wage" law, shouting in defiance as she was arrested for mob action and disorderly conduct. But her real legacy may be her drive to push banks into making risky mortgage loans.
16 posted on 09/29/2008 7:15:49 AM PDT by roses of sharon (The MSM vampires must die!)
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To: vietvet67
http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form

Email the Banking Committee and tell them how you feel. Dodd should recuse himself because he took money from Fannie and Freddie. Quote some of the American Thinker article and let the Banking Committee know that YOU know how much "blood" is on their hands.

Obama should bow out of the election because he took money from them AND from ACORN. It's all collusion.
17 posted on 09/29/2008 7:16:51 AM PDT by HighlyOpinionated (NO $700 Billion Fiasco Financial Fix for Paulson, Bernanke, Etc, to walk away with OUR money!)
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To: sheikdetailfeather
Absolutely brilliant and should be shown around the world! This bailout cannot help a thing long term if the underlying causes of the problem are not addressed.

Once their assets are sold off, Fannie, Freddie and the FHA should be dissolved.

18 posted on 09/29/2008 7:22:12 AM PDT by Aquinasfan (When you find "Sola Scriptura" in the Bible, let me know)
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To: vietvet67
This is an another excellent article. I think the conservative community, including myself, are seeing more and more clearly. The wider, moderate/less informed/liberal community have not got a clue. The author brings us up to the moment.

I think the bail-out will be a disaster if Barack Hussein Obama (BHO) becomes President.

He could take these assets and give them away. Let the people living there already, have the houses. Anything is possible. The press will cover for him. His rationale might be that he is not giving the houses away. People are earning it or paying for it in various ways. For example, they could earn their houses as Democratic party operatives. Some might even become community organizers.

Many properties will be managed by Democratic party apparatchiks. They could get rich doing so, while steering a variety of political/economic behavior. The Chicago machine politics may become America's machine politics. How do you measure the potential for harm? Well you can start with the dollar size of the bail out as a minimum. Think of it as as a $700B gift to the Democratic party.

19 posted on 09/29/2008 7:25:31 AM PDT by ChessExpert (If it had been up to Hussein Obama, Saddam Hussein would still be in power)
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To: vietvet67

How we got here: billionaires buying off congressmen who in turn extort from billionaires the promise to make loans to people who need to get better credit before they even think about home ownership. Congressmen sleep with billionares, buy the votes of people who simply aren’t credit worthy and who end-run the American dream of hard work being the path to success. Home prices get dramatically inflated due to artifical competition.

Reality check sets in: folks can’t pays their loans; demand for houses was artifically high due to easy credit and now the houses are falling back to their natural value; infalted loans sold upstream are worth what the houses are really worth.

In summary: Congresmen scratch billionaires’ backs, billionaires cough up the “too-risky-for-words” housing loans, poor dumb sucker honest and responsible middle class O’liar claims to care about once again get left holding the bag. It doesn’t take an apple falling on Isaac Newton’s head to figure it out. All it takes is a ACORN falling on a squirrels’ head.

This is the Billionaire Bailout Bill of 2008. It is also the “Keep House Prices So Artificially High You Need 2 1/2 Incomes to Afford Them” Bill of 2008. There is nothing honest or wise about it.

Good thing government doesn’t subsudize haircuts.


20 posted on 09/29/2008 7:26:47 AM PDT by Puddleglum
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To: vietvet67

The president signs bills into law and is responsible for the executive branch government agencies. What did he do to stop it?


21 posted on 09/29/2008 7:39:27 AM PDT by hedgetrimmer
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To: vietvet67

...for later reading


22 posted on 09/29/2008 7:49:49 AM PDT by OldBlondBabe
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To: Puddleglum

I think you are on to an important phenomenon. Whenever government “helps” (funds), the same things happen. Public funding for college - college tuition goes up. Public funding for medical care - the cost of medical care goes up. Public funding for housing - the cost of housing goes up.


23 posted on 09/29/2008 8:57:40 AM PDT by ChessExpert (If it had been up to Hussein Obama, Saddam Hussein would still be in power)
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To: roses of sharon

Barack Obama and the Strategy of Manufactured Crisis

"Conspicuous in their absence are any connections at all with any other group, moderate, or even mildly leftist. They are all radicals, firmly bedded in the anti-American, communist, socialist, radical leftist mesh."

Whether by Fabianist incrementalism, or by catastrophe and revolution, the Socialists win by their strategy -- unless we expose them.

Please tell every one of your contacts -- and document with email or print.

24 posted on 09/29/2008 3:12:50 PM PDT by unspun (Tell the truth about Obama to all you know.)
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To: unspun

This needs to be reposted at least every third day for the next two weeks. Glad you reposted.


25 posted on 09/29/2008 3:39:39 PM PDT by MHGinTN (Believing they cannot be deceived, they cannot be convinced when they are deceived.)
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To: MHGinTN; All; Admin Moderator; Jim Robinson
Thanks, MHG!

All: please, don't repost the article as a new article, late tonight. I will be doing that in the morning, due to a new event to which I'll link:

A planned streaming radio interview with the author of Barack Obama and the Strategy of Manufactured Crisis -- James Simpson, of AmericanThinker.com

Tentative time is Tuesday, 9/30, 4:06 PM Central Time.

26 posted on 09/29/2008 4:03:02 PM PDT by unspun (Tell the truth about Obama to all you know.)
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To: MHGinTN; All; Admin Moderator; Jim Robinson
Sorry, I'll fix the syntax here...

I will be re-posting the article linked below with all its links for documentation late tonight, and with a link to...

A streaming radio interview with the author of Barack Obama and the Strategy of Manufactured Crisis -- James Simpson, of AmericanThinker.com

Tentative streaming interview time is Tuesday, 9/30, 4:06 PM Central Time.

The interview will be done live on an AM radio station in a large midwest city.... stay tuned....

27 posted on 09/29/2008 4:08:12 PM PDT by unspun (Tell the truth about Obama to all you know.)
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To: vietvet67

If the Republicans tried to stop it and couldn’t back in 2003 that doesn’t absolve them of all responsibility. You can’t pass the buck like that, that’s not leadership. That’s an excuse. You can’t just drop the ball like that and say “oh well I tried.” It seems like that same excuse has also been used for the current energy crises. It seems like Bush needs to brush up on his communication skills, you can’t just let certain things drop, that’s is not acceptable.


28 posted on 09/29/2008 4:13:35 PM PDT by rodeo-mamma
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To: Volunteer; All

We’re past the cause and blame game now.

Call me a gloom and doomer if you must but I now fear the continued existence of our country as we have known it.

Big money is behind this all and our only recourse, besides expressing our opinions to the sub-players, is to pray.

Pray hard that God shows His grace upon us.


29 posted on 09/29/2008 5:25:45 PM PDT by vietvet67
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