How the Democrats crashed the banks

How the Democrats crashed the banks. Part I

 

By Ken Brinzer

 
Those who buy into the so politically-convenient disinformation that blames Wall Street greed for our economic woes are likely to overlook the real culprits in the economic plunge story that has taken place from Wall Street to Main Street, coast to coast, and far beyond.  That’s because the real culprits are in the United States Congress, not on Wall Street.  And to be sure, it may be a matter of greed, but it would be of political greed and or myopia.
For example, take a look at the devolution in the Freddie Fannie debacle.  It all began with a reasonable idea that was enacted into law under President Carter in 1977.  Known as the Community Reinvestment Act (CRA), it caused little harm and surely did some good, until it was morphed into something quite different, quite insidious and pernicious during the Clinton years.
In 1995 under the version of the act revised by the Clinton administration, lenders were told that proof of income, source of down payment and credit history of a loan applicant would no longer be required as qualifying criteria.  In addition to this revision of the CRA, the lending community was threatened by Clinton’s Attorney General Janet Reno, who promised to prosecute to the full extent of the law those who violated the 1995 lowered standards for lending.  The die had been cast under Clinton and the situation was such a mess that in 1999, then Clinton Treasury Secretary Lawrence Summers warned that reform of Freddie and Fannie was essential.  His warnings fell on the deaf ears of those at Fannie and Freddie and over in congress who should have pushed for reform following Secretary Summers’ call for it, but instead promulgated the expansion of their powers.
Then during the Bush years, there were 18 further calls for congress to reform Freddie and Fannie and all were ignored.   Most notable among those who issued calls for reform of Freddie and Fannie during the Bush years were Treasury Secretary Snow, then Fed Chairman Alan Greenspan, and even President Bush himself.  All calls for reform were ignored or blocked by those members of congress who had their own agenda and did not hesitate to belittle and demagogue against these legitimate calls for reform.  One such belittlement came from the mouth of Representative Barney Frank who characterized the calls for reform as “inane”; but they weren’t, they were really needed and that became obvious when information surfaced that 5 million home loans had been made to illegal aliens alone, many without income or asset verifications, and all without citizenship papers.
Clearly those in congress had a responsibility to reform the financial nonsense that became public policy under Clinton and went unreformed throughout the Bush years despite abundant calls for reform from both inside and outside of the executive branch.

(to be continued)

Ken Brinzer is 62 years old, and lives with his wife, a high school chemistry teacher, in Penn Hills, PA. The Brinzers have been married 34 years and have 3 adult children.  He is a financial services professional, licensed both as a life insurance agent and a registered representative series 6. He holds a BA degree in Spanish from Rutgers (1968).  He served in the USAF for 4 years 1968-1972 and attained the rank of captain.  He is a practicing Catholic, reads at church, and loves God, Family, and Country and the splendor of truth.

http://mises.org/story/2451

Making Kids Worthless: Social Security’s Contribution to the Fertility Crisis

Daily Article by Oskari Juurikkala | Posted on 1/24/2007

“Kinder haben die Leute immer – People will always have children,” assured Konrad Adenauer, the German Chancellor, in 1957. He was convinced that the future of the brave new pay-as-you-go social security system would not be undermined by demographic changes.

Adenauer was as wrong as ever. Social security schemes around the developed world are facing a major crisis due to greater longevity, declining retirement ages and – lo and behold – below-replacement fertility rates.

What the good statesman did not realize is how the new system would affect the incentives of individuals to work, to save, and to have children. Labor force participation rates among older workers have declined dramatically since the 1960s throughout the Western world. The rules of social security benefits in most countries mean that working just does not pay off. In this way, pay-as-you-go social security schemes contribute to their own bankruptcy.[1]  

Read more here.

Laigle’s Forum featured on Christian Newswire:

http://www.christiannewswire.com/news/405798484.html

French mainstream press confirms our assessment of the financial crisis

French mainstream press confirms our assessment of the financial crisis

 

Some American news consumers insist that anything not based on mainstream reports is not worth their while reading. In fact, I just heard Alan Colmes attacking Jerome Corsi on his book The Obama Nation and one of his chief criticisms was that Corsi uses conservative media as factual support.

Now, I have previously refuted at this site the leftist view that our current financial crisis is due to rampant laissez-faire free-market finance. I have shown, based on various sources, that in fact, the blame lies squarely with the government, and particularly with the CRA and its beefed up enforcement under Clinton, and unfortunately, under second-term George W. Bush as well. Certainly, some readers who think like Alan Colmes were skeptical and dismissive of my facts, even though most come from neutral sources.

That is why I was delighted when a French colleague recently sent me an article from the online version of the daily newspaper Figaro confirming my assessment of the financial crisis and its origins.

Now, while the Left in France does classify Figaro as right of center, you need to understand that this is a highly respected century-old publication that enjoys a very large hardcopy readership, with over 400,000 copies distributed and with an amazing 4.224 million unique on-line visitors, making it the number one news site in France today.

By contrast, the newspaper at the other end of the political spectrum, Libération, has a hardcopy readership of only 160,000 and claims only 150,000 visitors to its web site.

Clearly, French readers on both the Left and Right trust and prefer Le Figaro.

 This is why I took the pains to translate Figaro’s recent article “Subprime accused, State guilty” by Vincent Bénard.

This translation is one item you can safely forward to your most skeptical friends.

Donald Hank

 

 

Translation  of :

Subprime: market accused, State Guilty

 
09/09/2008 | Updated : 10:43 |

 

Vincent Bénard, President of the Hayek Institute of Brussels, author of “Le Logement, crise publique, remèdes privés” (Romillat), reviews the subprime lending crisis and takes the side of the free economy when Freddie Mac and Fannie Mae, two mortgage refinancing agencies, are placed under the conservatorship of the United States government.

The cause is understood by many observers: the subprime financial crisis is due to the madness of the markets and shows the limits of unbridled finance.  And they urge more public regulation of financial institutions.

Free enterprise is the whipping boy again, because there is no market more perverted by the intervention of the federal government than that of mortgage credit in the United States.

The two institutions with the cute nicknames Fannie Mae (FNMA) and Freddie Mac (FHLMC) bear a heavy weight of responsibility in the financial unmooring of the American banking system.  The former was initially a government agency created in 1938 by the FDR administration to issue low interest mortgages thanks to federal guarantees, which supplied liquidity to a home loan market at low rates accessible to lower-income families.

In 1968, the Johnson Administration, realizing that the State-guaranteed commitments of Fannie Mae were becoming broader and would be subject to the lending capacity of a treasury department mired in financing the Vietnam War, arranged for it to be privatized.  Then in 1970, the Nixon administration created Freddie Mac to provide a semblance of competitiveness in this mortgage credit refinancing market.

This background provided Fannie Mae and Freddie Mac with a hybrid status of Government Sponsored Enterprise (GSE).  Thus, they were private but legally bound to deal exclusively in home loan refinancing under federal control in exchange for tax breaks.  Worse yet, while being officially private, the two agencies have always been considered – thanks to their public sponsorship and their social role, to benefit from an implicit guarantee on the part of the American Treasury!

Privatized benefits, collectivized losses: such a cocktail was bound to prompt the executives of the GSEs to take excessive risks if the state sponsorship came up short.  This is exactly what happened in the 1990s.  It was reminiscent of a famous French scandal…[The author is referring to the Credit Lyonnais scandal in which the French government bailed out that bank]

The sponsorship of these two enterprises was transferred to the US Housing and Urban Development Department (HUD) in 1992, because that agency wanted to influence GSE-financed loans to satisfy a major objective of any self-respecting politician in America, namely, increasing the home ownership rate among low-income populations, notably minorities.

Thus, the HUD forced Fannie Mae and Freddie Mac to increase both the volume and the proportion of refinanced subprime credits (up to 56% in 2004).  To make matters worse, one of the HUD bosses, fearing that the declaration of risks taken by the two GSEs in order to satisfy these rules, would cause the markets to lose confidence in them, solved the problem by making it perfectly legal for them not to disclose too many details about their exposures.

Thus, using increasingly complex mortgage products, Fannie Mae and Freddie Mac refinanced more than five trillion dollars in credits, or 40% of American homes, including more than half of subprime credits even though they did not have enough of their own funds to commit to such amounts.  As a result, the banks issuing these credits could afford not to be too particular about the loans they authorized, because there were two refinancers on the stock market to back them up.  Countrywide, the bank whose lending policies to lower-income families is now vilified, was incensed only three years ago by the executives of Fannie Mae for their brash subprime lending policies.

But the downturn in the economic boom multiplied borrower defaults, and the two GSEs are threatened with not being able to meet their obligations, which could spread to all institutional investors.  Now the State is urgently calling for their rescue, which will cost the taxpayer several hundred billion dollars.

A second public intervention expanded bank excesses in granting credits to insolvent families.  In the 1990s, studies showed that members of black and Hispanic communities had loan applications turned down somewhat more than whites or Asians, although these refusals only amounted to one application out of four.  Certain lobbies saw in this not a logical reflection of less wealth in these communities but rather proof of purported racism in the financial world.   

An antidiscrimination law of 1977, the Community Reinvestment Act (CRA), was thus strengthened in 1995 to crack down on banks refusing credit to minorities under penalty of greater sanctions.  The banks were thus obliged to partially relinquish the precautionary role they normally play when refusing a loan to a person who is objectively less solvent.  No big deal: Fannie Mae and Freddie Mac were there to refinance these shaky loans!

Today, many experts believe that, without the CRA, and without the GSEs, minorities would have more access to property than they now do, less quickly but more soundly.  By trying to artificially accelerate what the free economy accomplished at its own rate, it was the State that, through both regulations and legislation, led the actors in the credit chain to behave irresponsibly, causing a serious financial crisis and resulting in the failure of many families it purported to help.

Translated by Donald Hank

 


[1]

Plenty of shame to go around

The Right grovels, the Left takes the spoils

 

We had previously shown how the Bush administration had so willingly run along with the Left’s agenda to provide affordable housing to minorities, demanding that 50% and more of Fanny Mae mortgages go to minorities, and even trying to foist a “no-downpayment” scheme on the public.

Today we look at how the other side of the aisle, including Barack Obama, shamefully benefitted from Fanny and Freddy’s donations.

It is clear from all reports that, while Bush and RINOs groveled to ingratiate themselves with the kingpins of Big Mortgage, these kingpins were pushing for more power to the Left.

The easiest explanation why the Republicans want to run along with this shameful process is that there seems no longer to be any meaningful difference in ideology between the two parties.

We now have a one-party system, and it is up to American ingenuity to destroy this evil empire before it destroys us.

Your fury is ignited and is growing. It may be sufficient to turn enough Americans against the elites who brought on this financial crash to elect a third party candidate.

Not much is known about our most viable alternative, Chuck Baldwin, but he does have some surprisingly powerful endorsements, such as Jerome Corsi.

They say he has no government experience.

Neither did George Washington.

Are you angry enough to ditch the Republicans who helped mightily to bring down the American economy and are now poised to socialize the American financial market?

Do you dare to dream?

Another alternative is to vote for McCain and then be prepared to fight him tooth and nail on issues like finance and illegal immigration for the next 4 years. We have not found the new Reagain, but have you ever considered that you, the American people, can be the Reagan you long for? Think about it.

At any rate, you can start by opposing the bailout like you opposed the amnesty bill. If you give it your best shot, that miscreant legislation will fail.

http://conservativehq.com/active-petitions/petition-to-stop-the-bailout/

Donald Hank

 

 

From the Heritage Foundation:

 

Morning Bell: A Vicious Cycle of Their Own Making

 

“But Fannie and Freddie pushed back hard, turning to friends on the left for protection. Former Walter Mondale and Barack Obama campaign adviser James Johnson led a fierce lobbying campaign to fight reform of Freddie and Fannie. Clinton administration OMB director Franklin Raines told investors when he was Fannie Mae CEO in 1999: “We manage our political risk with the same intensity that we manage our credit and interest rate risks.” Fannie and Freddie’s lobbying power over the left continues to be strong to this day. According to the Center for Responsive Politics, the top three recipients of campaign donations from Freddie and Fannie’s PACs and employees are all Democrats. From 1989 through today, Sen. Chris Dodd received $165,400, Barack Obama $126,349, and John Kerry $111,000. The Washington Post concludes: ‘Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them.'”

 

http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html

Update: Fannie Mae and Freddie Mac Invest in Lawmakers

Published by Lindsay Renick Mayer on September 11, 2008 11:26 AM | Permalink | Comments (22)

When the federal government announced two months ago that it would prop up mortgage buyers Fannie Mae and Freddie Mac, CRP looked at how much money members of Congress had collected since 1989 from the companies. On Sunday the government completely took over the two government-sponsored enterprises, and we’ve returned to our data to bring you the updates, this time providing a list of all 354 lawmakers who have gotten money from Fannie Mae and Freddie Mac (in July we posted the top 25). These totals are based on data released electronically from the FEC on Sept. 2 and include contributions to lawmakers’ leadership PACs and candidate committees from the floundering companies’ PACs and employees. Current members of Congress have received a total of $4.8 million from Fannie Mae and Freddie Mac, with Democrats collecting 57 percent of that. This week we also wrote about how much money lawmakers had invested of their own money in the companies last year–a total of up to $1.7 million.

 ….