Skip to comments.How Little Law From '70s Brought The Financial System To Its Knees
Posted on 11/20/2009 5:10:42 PM PST by Kaslin
This is the second installment of a Monday series excerpting the chapter on political implications from Thomas Sowell's latest book, "The Housing Boom and Bust."
One of the first federal government efforts to change the process of mortgage lending by private financial institutions was the Community Reinvestment Act of 1977. Like many government policies or programs, it began small and grew in scope and severity over the years.
The Community Reinvestment Act directed "each appropriate federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions."
These almost innocuous words nevertheless contain the implicit assumption that government officials are qualified to tell lenders to whom they should lend money entrusted to them by depositors or investors.
Although the Community Reinvestment Act had no major immediate impact, over the years its underlying assumptions and provisions provided the basis for ever more insistent pressure on lenders from a variety of government officials and agencies to lend to those whom politicians and bureaucrats wanted them to lend to, rather than to those whom lenders would have chosen to lend to on the basis of the lenders' own experience and expertise.
(Excerpt) Read more at investors.com ...
CRA + Political Correctness x ACORN x SEIU = bust
BOOKMARKED!!! (even before finished reading!!!)
Part II of five part series on "Housing Bust"
I use Sowell’s book for my Econ classes.
Thanks for the ping jaz. I would like to provide again that extremely informative link to the Dec. 27, 1993 National Review article “Assault On The Mortgage Industry” that I’ve posted seemingly a gazillion times since 2006 when I first saw it.
To me the date of the article is every bit as important as the text within when one considers the overall picture of the matter. It would be 1997 before the Clinton action was on the radar screen.
It was Senator Phil Gramm who came up with his 262-page amendment called the Commodity Futures Modernization Act, in December of 2000. This amendment, stuck in a government re-authorization bill, gave birth to the $62 trillion market for credit default swaps (CDSs). It was one of the last bills that President Clinton was to sign. Gramms amendment freed financial institutions like Fanny Mae and Freddie Mac from the risks and oversight of their CDS transactions which before they were solely responsible. This opened up the hedge fund and derivatives trade market which became the Achilles heel to our economic system.
We should have known from history that it caused a similar world economic collapse in the Panic of 1907. In the late nineteenth and early twentieth century, the little guy who wanted to trade stocks usually did it in a bucket shop rather than through a stockbroker. Bucket shops were set up in all sorts of premises, such as drug stores, hotels, cafés, etc. A bucket shop is a brokerage firm that books retail customer orders without actually having them executed on an exchange. Basically they were places where people could place bets on the performance of Wall Street. Joseph Kennedy made his fortune in Bucket Shops. It was the same type of mechanism that if found today in the credit default swaps market. What this tells us is that back in 1909, 100 years ago, people understood the risks and potential instability that comes from gambling on securities prices.
People who forget history repeat it. Wall Street firms like Bear Stearns, Lehman Brothers, Merrill Lynch, etc. started selling what they called derivatives, which were bets on how the market would do. Would it go up or down? One type of derivative was created which would bet on whether mortgage owners would pay or default. So, when the mortgage crises hit, the credit markets went upside down because there were a huge number of derivatives that bet on mortgage payments. The people who bet on mortgages would not get paid. These were people who were supposed to be paid off when a default occurred. Many of these people were banks who had huge amounts of money betting on these derivatives. But the folks who invented these derivatives had not set aside enough money to do that, and so it all came crumbling down like a house of cards.
For a good look into Gramms destabilization of the US economy, here is this post by Peter Cohan, President of Peter S. Cohan & Associates:
So as our economy is in grave danger, there has been no talk about fixing the real structural fault in our economic system. It is like the I-35W Bridge in Minneapolis with poorly designed gusset plates. The Obama Administration has ignored the cause of the economic failure and has used it to justify a spending spree that will cause further economic turmoil due to inflation and increased taxation. When the Democrats blame the economic collapse on the Bush Administration, tax cuts for the rich and greedy Capitalists they are purposely ignoring the true cause. All we hear is the continuous mantra that it was President Bushs fault. However, we should understand that there is a deeper fault with our economy that needs to be addressed.
bump for later
My hat is off for that cartoonist and it isn’t funny.
“CRA + Political Correctness x ACORN x SEIU = bust”
Your equation kept out the most important factor: the Fed.
Bump for later. I Love Dr. Sowell.
sowell ping and bump for hh’s ‘CRA page’...
BACKSTORY Remember when Candidate Obama expounded on 'Price Signals' to 'Change Behavior'? In an interview on Iowa Public TV in 2007, Obama advocated sending price signals to middle class consumers in order to change their behavior. Price signals being an Orwellian-Marxist code word for "punitive taxes and fees."
BACKSTORY Sap-happy Barack Obama, Esq, represents ACORN. He sued banks into loaning to marginal people. Illegals were never asked for proofs of employment or citizenship---pay stubs, SS numbers, etc. As long as they had a pulse and could write the name of one of their phony identities, they got a loan. Most illegals were scam artists----flipping the home back and forth among immigrant families at higher and higher profits, duping banks at every turn. When they were done looting, the last "homeowner" defaulted and absconded to Mexico with $tens of thousands in cash.........leaving banks (and taxpayers) holding the bag.
We found out that the toxic mortgages poisoning the global economy (that brought the US economy to its knees) were held by leeches with larceny on their minds, who had mo moral integrity, just parsites who never intended to pay back banks.
BACKSTORY Candidate Obama was fronted by SEIU and ACORNs muscle for money protection racket. The strategy involves SEIU extorting donations from targeted government and corporate officials, offering them Mafia-like protection from protests by SEIUs paid thugs, many of them convicted felons.
ACORN has blocked bank mergers until the targeted financial institutions agreed to change their lending policies to ACORNs satisfaction.
It began to play out----in the context that candidate Obama's "hope and change" anarchy intended to nationalize entire industries----- banks, auto, healthcare, energy----on a march to socialism, and then communism.
STIMULUS SCAM---A DEM SLUSH FUND Americans are awakening to the fact that govt insiders are mishandling trillions in stimulus------that federal monies are being illegally directed to Democrat campaign coffers, or wire-transferred offshore into personal accounts......or being laundered in the states. ABC News reported the WH invented 700 phantom Congressional districts that received stimulus grants (read money laundering).
Keep in mind, some 85% of Obama's stimulus is still in Washington. Ohaha's saving it for imperiled Dems' 2010-12 elections.
BACKSTORY On June 9, 2009, Pres Ohaha called a press conference to announce, "Several financial institutions are set to pay back $68 Billion to taxpayers." Resonable people (taxpayers) assumed that any money or profit would be returned to the general funds from whence it had come .......in order to pay down the debt. The truth, however, is that the money returned by the banks is finding new life as part of what amounts to a Treasury Dept-controlled slush fund.
“BACKSTORY Sap-happy Barack Obama, Esq, represents ACORN. He sued banks into loaning to marginal people. Illegals were never asked for proofs of employment or citizenship-—pay stubs, SS numbers, etc. As long as they had a pulse and could write the name of one of their phony identities, they got a loan.”
Obaba is making many mistakes.
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