Tag Archives: Chairman of the Federal Reserve

Once Is A Mistake–Twice Is A Decision

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Yesterday The New York Post reported that the Obama Administration is making the same mistakes that led to the housing market collapse of 2008. One of the major causes of the economic collapse of 2008 was the amount of money borrowed for housing loans that was not going to be paid back. There were a number of causes of the problem. The economy had been good for a while, interest rates were reasonably low, people had moved into bigger houses, and banks were pressured to give loans to people with questionable credit and unsubstantiated income. As gasoline prices doubled, many of the people who had taken out loans that were on the edge of their ability to repay found themselves unable to make the payments. The banks, in turn, sold those mortgages as if they were going to be paid back, and they were not paid back. The YouTube video Burning Down the House provides one of the best explanations of the cause of the 2008 collapse that I have seen. I am posting it here in case YouTube takes it down:

That was then, but where are we now?

The story in The New York Post reports:

As Paul Sperry recently noted in The Post, Team Obama has pushed mortgage lenders to offer home loans to folks with shaky credit, setting up conditions for another housing-market collapse.
Wasn’t the last one bad enough?

Credit scores of approved borrowers, for example, have been trending down, even as their debt levels have grown.

The Federal Housing Administration and government-sponsored “independent” lenders Fannie Mae and Freddie Mac have been demanding lower credit standards — just as the feds did starting under President Bill Clinton, in pursuit of the same “affordable housing” goal.

Some borrowers need only put 3 percent down to get a Fannie Mae loan — even if the downpayment is a gift. Fannie also has started up a new subprime-lending program.

The Office of the Comptroller of the Currency recently warned that mortgage underwriting standards have slipped and now reflect “broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.”

When the economy and housing prices turn south again, a lot of these loans will go bad, just as they did last time.

The writer of the article states that he doesn’t believe the loans will cause a worldwide problem this time because the banks have learned their lesson. He does point out, however, that a large portion of housing loans made in America are government insured. That means taxpayers will be on the hook this time (I thought we were the last time). Hang on to your hats. Here we go again.

This Isn’t New, But It’s Important

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Today Investors.com posted a story stating that:

President Obama says the Occupy Wall Street protests show a “broad-based frustration” among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis.

“You’re seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place,” he complained earlier this month.

The article asks, “But what if government encouraged, even invented, those “abusive practices”?

Well, they did. In December of 2008, I (rightwinggranny.com) posted an article linking to a youtube video entitled “Burning Down The House.” The story told in that video may be finally getting out. I strongly suggest you follow the link and watch the video.

Investors.com is reporting on a document from 1994 that sought to make sure that there was no discrimination in the lending industry. A great idea, but it overlooked the fact that banks needed to discriminate against those people seeking loans that they were unable to pay back.

The article reports:

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

“The agencies will not tolerate lending discrimination in any form,” the document warned financial institutions.

This is the root of the housing crisis. Someone much wiser than I once said, “The road to hell is paved with good intentions.” This is an example of that statement.

We haven’t learned our lesson yet. The article reports:

Tom Perez, assistant attorney general for civil rights, recently testified that his division “continues to participate in the federal Interagency Fair Lending Task Force.” And he and the task force are working with the newly created Consumer Financial Protection Bureau to “enhance fair-lending enforcement.”

The fair-lending task force’s original policy paper undercuts the notion the financial crisis was all about banker “greed,” though it certainly played a role after the fact. Rather, it offers compelling evidence that the crisis evolved chiefly from government mandates and threats to increase lending to applicants who could not afford them.

This is the story about our current financial woes that needs to be told.