This is A condensed timeline from the Investor's Business Daily
explaining "What Caused the Loan Crisis": I't's the best, short but full
accounting I've read yet.
This is quite a time line. Bush urged reform 17 times.
1977: Pres. Jimmy Carter signs the Community Reinvestment Act into
Law. The law pressured financial institutions to extend home loans to those
who would otherwise not qualify. The Premise: Home ownership would
improve poor and crime-ridden communities and neighborhoods in terms of
crime, investment, jobs, etc.
Results: Statistics bear out that it did not help.
How did the government get so deeply involved in the housing
market? Answer: Bill Clinton wanted it that way.
1992: Republican representative Jim Leach (IO) warned of the danger
that Fannie and Freddie were changing from being agencies of the public at
large to money machines for the principals and the stockholding few.
1993: Clinton extensively rewrote Fannie Mae and Freddie Mac's rules
turning the quasi-private mortgage-funding firms into semi-nationalized
monopoies dispensing cash and loans to large Democratic voting blocks and
handing favors, jobs and contributions to political allies. This potent mix
led inevitably to corruption and now the collapse of Freddie and Fannie.
1994: Despite warnings, Clinton unveiled his National Home-Ownership
Strategy which broadened the CRA in ways congress never intended.
1995: Congress, about to change from a Democrat majority to
Republican, Clinton orders Robert Rubin's Treasury Dept to rewrite the
rules. Robt. Rubin's Treasury reworked rules, forcing banks to satisfy
quotas for sub-prime and minority loans to get a satisfactory CRA rating.
The rating was key to expansion or mergers for banks. Loans began to be
made on the basis of race and little else.
1997 - 1999: Clinton, bypassing Republicans, enlisted Andrew Cuomo,
then Secretary of Housing and Urban Developement, allowing Freddie and
Fannie to get into the sub-prime market in a BIG way. Led by Rep. Barney
Frank and Sen. Chris Dodd, congress doubled down on the risk by easing
capital limits and allowing them to hold just 2.5% of capital to back their
investments vs. 10% for banks. Since they could borrow at lower rates than
banks their enterprises boomed.
With incentives in place, banks poured billions in loans into poor
communities, often "no doc", "no income", requiring no money down and no
verification of income. Worse still was the cronyism: Fannie and Freddie
became home to out-of work-politicians, mostly Clinton Democrats. 384
politicians got big campaign donations from Fannie and Freddie. Over $200
million had been spent on lobbying and political activities. During the
1990's Fannie and Freddie enjoyed a subsidy of as musch as $182 Billion,
most of it going to principals and shareholders, not poor borrowers as
Did it work? Minorities made up 49% of the 12.5 million new
homeowners but many of those loans have gone bad and the minority
homeownership rates are shrinking fast.
1999: New Treasury Secretary, Lawrence Summers, became alarmed at
Fannie and Freddie's excesses. Congress held hearings the ensuing year but
nothing was done because Fannie and Freddie had donated millions to key
congressmen and radical groups, ensuring no meaningful changes would take
place. "We manage our political risk with the same intensity that we manage
our credit and interest rate risks," Fannie CEO Franklin Raines, a former
Clinton official and current Barack Obama advisor, bragged to investors in
2000: Secretary Summers sent Undersecretary Gary Gensler to Congress
seeking an end to the "special status". Democrats raised a ruckus as did
Fannie and Freddie, headed by politically connected CEO's who knew how to
reward and punish. "We think that the statements evidence a contempt for
the nation's housing and mortgage markets" Freddie spokesperson Sharon
McHale said. It was the last chance during the Clinton era for reform.
2001: Republicans try repeatedly to bring fiscal sanity to Fannie
and Freddie but Democrats blocked any attempt at reform; especially Rep.
Barney Frank and Sen.Chris Dodd who now run key banking committees and were
huge beneficiaries of campaign contributions from the mortgage giants.
2003: Bush proposes what the NY Times called "the most significant
regulatory overhaul in the housing finance industry since the savings and
loan crisis a decade ago". Even after discovering a scheme by Fannie and
Freddie to overstate earnings by $10.6 billion to boost their bonuses, the
Democrats killed reform.
2005: Then Fed chairman Alan Greenspan warns Congress: "We are
placing the total financial system at substantial risk". Sen. McCain, with
two others, sponsored a Fannie/Freddie reform bill and said, "If congress
does not act, American taxpayers will continue to be exposed to the enormous
risk that Fannie Mae and Freddie Mac pose to the housing market, the overall
financial system and the economy as a whole". Sen. Harry Reid accused the
GOP ;of trying to "cripple the ability of Fannie and Freddie to carry out
their mission of expanding homeownership" The bill went nowhere.
2007: By now Fannie and Freddie own or guarantee over HALF of the $12
trillion US mortgage market. The mortgage giants, whose executive suites
were top-heavy with former Democratic officials, had been working with Wall
St. to repackage the bad loans and sell them to investors. As the housing
market fell in '07, subprime mortgage portfolios suffered major losses. The
crisis was on, though it was 15 years in the making.
2008: McCain has repeatedly called for reforming the behemoths, Bush
urged reform 17 times. Still the media have repeated Democrats' talking
points about this being a "Republican" disaster. A few Republicans are
complicit but Fannie and Freddie were created by Democrats, regulated by
Democrats, largely run by Democrats and protected by Democrats. That's why
taxpayers are now being asked for $700 billion!!
If you doubt any of this, just click the links below and listen to
your lawmakers own words. They are condeming!
Postscript: ACORN is one of the principle beneficiaries of Fannie/
Freddie's slush funds. They are currently under indictment or investigation
in many states. Barack Obama served as their legal counsel, defending their
activities for several years.