I am posting this here for reference and because it will vanish off the RMB soon. It will be interesting to hear what you think. You may thank Presidents Carter and Clinton with assists from Janet Reno, ACORN and Revs. Jessie Jackson and Al Sharpton for the real estate bubble. The government made it necessary for banks to make loans to people they would never have touched in the past. They did so via the Community Reinvestment Act.[1] That act outlawed "redlining," a practice where banks would not make loans in certain areas. The law also outlawed discrimination based on race, ethnicity, religion or geographic location. The original act created a situation where anyone believing a bank behaved badly could file a complaint with one, all or any combination of five federal agencies: The Office of the Comptroller of the Currency, The Federal Reserve System, The Federal Deposit Insurance Corporation, The Federal Financial Institutions Examination Council and The Office of Thrift Supervision.[2] At first most of the complaints came as a result of banks refusing to make loans that did not make good financial sense. Under the heading of "The only thing worse then a bad law is a badly written law" the statute required each of those complaints to be investigated individually. So one person could file separate complaints to each of those agencies and the bank would end up dealing with five different auditors trying to interpret a remarkably vague standard, all operating under a different supervisors, internal policies and procedures. It wasn't hard to predict that at least one of the auditors would show up with some agenda to follow. Community activists and activist organizations began using the Community Reinvestment Act as a club to force banks into making loans to people that would not normally qualify.[3][4][5] Rev. Jackson, Al Sharpton, Acorn and others would set banks up for a fall. They would send in a half dozen people that could not possibly qualify for a loan. When the banks turned these people down, the afore mentioned activists would go in to the banks and threaten the banks with all the above mentioned costly, time consuming no win audits... Unless, of course, some agreement can be reached. That agreement usually included a substantial check to the community organization threatening to file the complaint. While links are difficult to find, even John Taylor, president of the National Community Reinvestment Coalition admits there may have been "a few instances of Greenmail."[6] A few instances my butt. That was ACORN's business model for years. That is where they got the money to make the jump from a small community operation to the nationwide left wing activist organization they became. The lens slut Jessie Jackson did pretty well in that game as well.[7] Lots of folks got very wealthy milking the banks. In self defense, the banks caved in and began offering "creative financing." Low or no money down, adjustable rate mortgages, just about anything they could think of to get these non-qualifying people into a mortgage. The banks were in a no win situation. Many banks simply pulled out of urban areas. Now then, we fast forward a few years. The Clinton administration and Janet Reno[8] put enormous pressure on lending intuitions to make sub-prime loans. President Clinton could not have been clearer if he would have said, "Y'all start making loans to these here poor people or the federal government is going to come down on you like a ton of fertilizer."[9] Clinton and Reno got the FDIC to change the rules making CRA scores public. Banks with low scores became even larger greenmail targets. To avoid the inevitable manure storm, even more banks began making even more shaky loans. So within a very few years we ended up with quite a few banks holding quite a bit of seriously crappy paper. The banks, not wanting to eat the bad mortgages they were forced to make, began bundling that questionable paper with some of their good paper and selling it off. These bundles were bundled into even larger packages and resold. And on and on and on up the food chain until these packages go so large that only super players like AIG and Goldman Sachs could afford to bid on them. The other down side to these packages was the shear size of them. When you are buying a package of 50,000 home loans it is difficult to look at each and every note to see if it is performing, in trouble or defaulted. They looked at a statistical sample of each package. But as history shows us, that sample was not always accurate and some say not always random. The left forged the mortgage loan crash under the law of unintended consequences. The right enabled it by not shutting it down before we got to this point. However, if it makes you feel any better, President George W. Bush tried to stop it before it burst. Several times.[10][11] Each and every time left wing congress critter, led by Barney Frank (Twit-MA) stopped every attempt to stop these brainless lending practices.[12] --------------------------------------------- [1] http://en.wikipedia.org/wiki/Community_Reinvestment_Act [2] http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Regulations [3] Also known as people that cannot afford to buy a house and/or do not have enough of a down payment to protect the bank in case of property devaluation and/or early default. [4] http://www.realclearmarkets.com/articles/2009/09/16/acorns_a_creature_of_the_cra_97409.html [5] http://www.nationalreview.com/articles/225898/planting-seeds-disaster/stanley-kurtz [6] http://www.encyclopedia.com/topic/R...ct_of_1989_Financial_Institutions_Reform.aspx [7] http://www.opinionjournal.com/editorial/feature.html?id=110009295 [8] http://www.justice.gov/archive//ag/speeches/1998/0320_agcom.htm [9] http://www.cato.org/pubs/regulation/regv17n4/vmck4-94.pdf[10] http://georgewbush-whitehouse.archives.gov/news/releases/2008/10/20081009-10.html [11] http://www.nytimes.com/2003/09/11/b...mac-and-fannie-mae.html?pagewanted=all&src=pm [12] http://en.wikipedia.org/wiki/Barney_Frank#Fannie_Mae_and_Freddie_Mac
Don't forget we had to have a great depression first. Followed by an unapologetic welfare state with the New Deal before all of this which begat the whole bloody notion that every frigging person should own a house (facilitated by the government)!
It's true that too many people had a sense of entitlement about owning a home. I remember hearing foreclosure stories and you had secretaries and janitors living in mansions that they had no chance of paying off and after the crash, their home was worth less than what they still owed. Many people needed a reality check and they got it after the crash.
