Monday, October 13, 2008

IBD, Wake Up America

A nation that doesn't know history is destined to repeat its serious mistakes. People swayed by carefully crafted political propaganda relentlessly repeated and effectively delivered can easily lose their freedom and way of life. (Especially when their experience has not yet taught them otherwise.)

How often have you been told that "the direct causes of our financial crisis and subprime real estate loan mess were the greedy banks, big corporations and the failed economic policies of George Bush"? Nothing could be further from the truth.

Every American, young or old, should struggle with what and learn who was really behind the subprime loan disaster that threw our economy off track:

In 1977, Jimmy Carter and a Democrat Congress created the Community Reinvestment Act mandating that banks make more housing loans to lower-income and inner-city borrowers. It was for a well-intended social cause and even appeared to work in the 1980s.

But in 1995, President Clinton imposed even tougher regulations that forced banks to make dramatically more subprime loans to previously unqualified people with lower credit scores in higher-risk areas.

Government regulators rated banks by how well they performed in meeting these strict new CRA obligations. Failure to comply meant stiff penalties and limits on mergers, acquisitions and expansion.

Big Government forced the lowering of long-proven safe-lending standards.
Most of the more than $1 trillion of new subprime CRA loans had adjustable rates. Many required no documentation of the borrower's income and little or no down payment.

For the first time, the Clinton regulatory rules allowed and encouraged lenders to bundle the new, riskier subprime loans with prime loans and sell these packages to other institutions. The first one hit the market in 1997. That tragic blunder let loan originators make their profits faster and eliminate any future risk for those lower-quality loans. It let them turn around and make even more CRA-type loans and sell them off in packages again, with little future risk.

It was a government-sponsored pyramid scheme, with Fannie Mae and Freddie Mac providing the implied government backing by buying ever larger amounts of these risky subprimes.

Freddie and Fannie also became heavy donors to top
members of Congress. These included Sen. Chris Dodd, a young Sen. Barack Obama and Rep. Barney Frank, who aggressively defended the highly leveraged, extremely risky lending against any reforms.

Ironically, the Bush administration repeatedly went to Congress in 2004, 2005 and 2006 to obtain stronger oversight and some limits on Freddie and Fannie's reckless subprime lending. And each time, it was voted down by Democrats in Congress, led by Frank, now chairman of the Financial Services Committee.

Bottom line: This whole mess was another Big Government program created, designed and run by Democrats. It started with great intentions but resulted in typically awful unintended consequences that materially hurt the very people they were supposed to help.

Worse, this incompetence put our financial system in jeopardy. It's reminiscent of LBJ's two lost wars — the War in Vietnam and the War on Poverty. (Vietnam was first lost in the liberal press who foisted defeat on the American people who bit---hook, line and sinker.)

Many government housing projects, though well-intended as part of LBJ's War on Poverty, later deteriorated into slums that became recruiting grounds to get very young new gang members.

That's how we got into this financial mess — and why the $700 billion rescue package was passed. But what about the future? What serious threats does America face in the next five years? The list isn't comforting:

Read the rest of this article here.

10 comments:

Jungle Mom said...

I, too, found that to be a great article. I am wondering if you might have the opportunity to read my post for today and sound off on it?

lady jane said...

Excellent read. Thank you.

Webutante said...

Can we connect the dots before it's too late? I pray so....

Serving Patriot said...

ZZZZZZZZZzz

same ol tired GOP talking points.

How 'bout something better?

How 'bout splaining how our govt is spending far above its revenue? how that competes for available credit? How foreign powers provide that credit due to the excessively imbalanced trade? How those same powers are now in a position to dictate terms upon our govt?

Go ahead, keep blaming all those people who bought what was sold (houses are the safest investment, house values ALWAYS go up), did what the marketers asked them to do, and no, perhaps because of a catastrophic medical bill find themselves bankrupt.

But its always easier to blame those lower on the ladder than it is to help them eh?

Typical Boomer "I got mine" and "Suck.On.This" attitude.

SP

Webutante said...

Clinton balanced the budget after the Reagan Administration brought the Wall down finally putting this country into peace-time expansion. Bush has been a war-time president and indeed failed to use his veto pen enough, one of his greatest failings....I've been writing about SWFs (Sovereign Wealth Funds)and how they've become the Biggest Gorillas in global markets and debt markets. I don't like it that Hank Paulson courts these behemoths hat in hand, on bended knee. Come to think of it, I'm not wild about Paulson at all.

Now what's that about people just doing what they were told? Are you saying that in the real world buyers have no personal responsibility? They just do what they're told and, golly gee, they were told their future home prices would go up forever and believed it. What world are you living on? Not mine. In my world, we give people more credit, no pun intended. And they have accountability for their choices and their gullability.

You lost me on the last one about typical baby boomers. But I would bet you, SP, that I gave away more money this year to needy, worthy people and causes than you made all year and often without a tax deduction. And lemme tell you something else, I can do it a helluva lot better than your federal government with its excessive red-tape, waste and overhead.

vienna va said...

"But I would bet you SP that I gave away more money this year to needy, worthy people and causes than you made all year and often without a tax deduction."

I'm guessing from this person's name he or she is serving in the military. I can speak to what military service members make, and if you gave away more than my husband made in one year, then I totally understand why you support John McMaverick.

I love the snarky attitude though. "I make more than you do" sums up the Republican party pretty well.

"And lemme tell you something else creep, I can do it a helluva lot better than your federal government can."

You're calling someone with the name "Serving Patriot" a creep? Sheesh...someone's angry. Better remove that "support the troops" ribbon from the back of your Ford. That's not change we can believe in!

Vienna VA said...

George W. Bush has increased the size of the federal government more than almost any president in history. Your share of the federal debt is now $33,808.45, which shouldn't be any problem for you to pay given your largess, but will be tough for those of us not in the top 1% bracket.

Sorry, but you no longer get a pass on saying the rest of us are dreaming of a bigger government when the party you've supported has created numerous new agencies and has decided the best way to save capitalism is to buy a stake in the top banks in the country. Nationalizing banking? If creating a new agency to oversee the taxpayers share of the investments we've collectively made in banks isn't big government, then honey, I don't know what is.

Webutante said...

You lose me, vienna, when you say you can 'totally understand' why I support McCain.

Anyway, SP sounds an awful lot like he's living under the same roof to me.....

Good night and sweet dreams of big government dancing in yous heads!

Vienna VA said...

Ok, here's what I mean, and I'm going to be blunt: you obviously make a very, very good living in retirement. I'm guessing that you support John McCain in large part because his tax plans are far more generous to wage earners in the top 3%. You'd have to be in one of the very top tax brackets if you gave away more in one year than my husband earned.

Webutante said...

It's too late to go into this tonight, but I'm in a very average tax bracket and neither Obama nor McCain would affect it unless they raise taxes across the board.

I support McCain for many reasons, but not for what he can gimme me, gimme me, gimme me. And who said I'm in retirement?