Who's to blame for the current economic crisis? Its a good idea to follow the money trail and see where it leads.
The Community Reinvestment Act (CRA) of 1977 was the beginning of this current mess. This act requires (yes it is still in force) lenders under penalty of law to make loans to lower income earners to provide them with the ability to own their own home. Under the watch of Bill Clinton in 1995 this act was expanded to include even more people who could not afford the loans they were getting into because "the CRA had not lived up to its promise".
The penalties imposed on the lenders who refused to make these loans, forced them to make the loans or else risk being forced out of business. These risky loans were then allowed to be bundled and sold as investments creating more government beauracracy in Fannie Mae and Freddie Mac.
The Bush administration (who I am no big fan of) tried in 2001 and again in 2003 to get congress to reform the financial industry and was both times blocked in the Senate Finance Committee. I know the Democrats out there are screaming that the Republicans were in control of the Senate at those times. True...but...
The Finance Committee was made up of 11 Republicans and 9 Democrats at the time and needed 60% to bring a bill out of committee and to the full floor. Only one Democrat would have had to approve for reforms to reach the Senate floor and come to a vote, but not one had the balls to break against his party and do so.
Who have been the chief beneficiaries of the CRA and its expansion?
Franklin Raines. A former Clinton administration budget director and current Obama adviser received $90 million as CEO of Fannie Mae from 1999 to 2004.
Jamie Gorelick. Clinton deputy Attorney General received $26 million as vice chair of Fannie Mae from 1998 to 2003. She has been highly mentioned for a cabinet position if Obama becomes President.
James Johnson. Served as an Aide to Walter Mondale and the head of Obama's VP selection committee received $21 million in his final year as Fannie Mae head in 1998.
Rahm Emanuel. Former Clinton White House senior adviser, served on the board at Freddie Mac and has opposed every reform that has been proposed for that institution in his time there. He is also credited with rallying Democrat Congressional support in the early days of Obama's campaign.
Christopher Dodd (Senate Finance Committee Chairman) and Barrack Obama. The number one and two benefactors of political contributions from Fannie Mae. Those that scream the loudest are usually hiding something...
Watch the Dems fight against financial reforms below.
Its not just Democrats people...
The financial institutions are guilty as well.
Many of these low-income people were duped by the lending institutions into taking adjustable rate mortgages (ARMs) and as interest rates have increased, many more of them are now not able to afford them.
Banks happily loaned money on houses that these people could not afford because the housing market was in fine shape and when they reposessed it they could sell it for a profit. But, with the current housing market (in most states...Oklahoma home values are still on the rise thankfully), the banks cannot resell them for profit and have had to scale back their lending to qualified individuals and companies to make up for their losses...
Some will claim that deregulation caused this crisis. But history shows us that when government gets out of the way, business prospers.
Why will the bail out not work?
The $700 billion package is like putting a band aid on a gaping chest wound. There are 1.2 TRILLION dollars of ARM notes coming up for review in the next few months. The payments are going to increase and in some cases double or more on those notes! People are already suffering. How the hell are they going to be able to afford even higher payments?
Many of these houses aren't worth what is owed on them and with the ever tightening credit market, refinancing is out of the question. What will become of them? It has been estimated that as much as a third will go into foreclosure. Another $400 BILLION dollar bailout then?
The only solution is to reform the laws that have gotten us here. Write your congress person and tell them that we need to repeal the CRA! Without that essential reform any bailout money will be poured down a gaping hole that has no end.
Want a REAL ECONOMIST opinion read here.
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OK. I know I'm probably going to hear from some Democrats about taking them to the woodshed here, but I welcome it. To any Republican reading this...don't get too comfortable...Your time will come.
