Democrat Fingerprints Are All Over The Subprime Mortgage Crisis Leading To The Economic Meltdown Resulting In The Subsequent Trashing Of The American Dream Due To Obama’s Irrational Policies Exploiting A Crisis To Suit His Nefarious Marxist Socialist Ends Right Out Of Alinsky’s Handbook For Radicals






The following is the truth about the Democrats laying the foundation for the sub-prime mortgage crisis which is a part of the public record! - Gary L. Morella

How Mortgage Crisis Happened: Good Intentions Paved Dire Path

On the eve of what may be the most important election of our time, the financial catastrophe that many believe will most influence Tuesday's vote remains only partially covered by the major media. IBD has run many articles and editorials on the mortgage meltdown, including a 7,500-word history from Web magazine American Thinker on Thursday. This timeline is condensed from that article, written by M. Jay Wells. It lays out the essential facts of the crisis, which at its heart is a tale of misguided government intervention rather than a failure of free-market capitalism, as argued by presidential candidate Barack Obama.



President Franklin D. Roosevelt initiated "New Deal" reform programs designed to affect the mortgage market and homeownership. Fannie Mae, the Federal National Mortgage Association, was established to facilitate liquidity among lending institutions.



As part of President Johnson's Great Society reform plan, much of Fannie Mae became a privately owned yet government-chartered company, a government-sponsored enterprise, or GSE. Fannie Mae bought home loans to preserve liquidity in the mortgage market. Though private, it remained backed by the federal government.



President Nixon chartered Freddie Mac, the Federal Home Loan Mortgage Corporation, as a GSE to compete with Fannie Mae.



President Carter, pressed by grass-roots organizations (though opposed by the banking industry) signed the Community Reinvestment Act to boost lending in poorer communities, regardless of the borrowers' ability to repay their home loans.


August 1989

Amid the savings and loan fallout, Congress enacted the Financial Institutions Reform Recovery and Enforcement Act. It mandated public release of lender evaluations and performance ratings, boosting pressure on the banking industry. Such oversight enabled bullying abuses of community organization groups such as ACORN to further influence lending practices.



Community organizer Barack Obama worked closely with ACORN activists. Employing the intimidation tactics of radical activist Saul Alinsky that Obama had learned and was teaching, activists crowded bank lobbies, blocked drive-up teller lanes and demonstrated at the homes of bankers to browbeat them into risky lending in poor and minority communities. Those who resisted were accused of racism.


At first, the GSEs resisted purchasing risky mortgages. Eventually the Clinton administration instructed them to substantially increase the percentage of these mortgages in their portfolios.


February 1990

Madeline Talbott, a well-known radical ACORN leader and banking industry agitator, challenged the merger of a Chicago thrift, Bell Federal Savings and Loan Association, which responded that it was being bullied into irresponsible "affirmative-action lending policy."



Enforcement of CRA was "sporadic," as the Washington Times notes, until a flawed Federal Reserve Bank of Boston study asserted that there were "substantially higher denial rates for black and Hispanic applicants than for white applicants."


October 1992

Rep. Jim Leach, R-Iowa, warned about the impending danger nonregulated GSEs posed. He worried that Fannie Mae and Freddie Mac were changing "from being agencies of the public at large to money machines for the stockholding few."

Rep. Barney Frank, D-Mass., countered that "the companies served a public purpose. They were in the business of lowering the price of mortgage loans."


November 1994

President Clinton addressed the housing issue: "I am committed to a new and unprecedented partnership between industry leaders and community leaders and government to recommit our nation to the idea of homeownership and to create more homeowners than ever before."


June 1995

Republicans won control of Congress and planned CRA reforms. The Clinton administration, allied with Frank, Sen. Ted Kennedy, D-Mass., and Rep. Maxine Waters, D-Calif., did an end-around by directing HUD Secretary Andrew Cuomo to inject GSEs into the subprime mortgage market.



Cuomo said, "GSE presence in the subprime market could be of significant benefit to lower-income families, minorities and families living in underserved areas."



By falsifying signatures on Fannie Mae accounting transactions, $200 million in expenses was shifted from 1998 to later periods, thereby triggering $27.1 million in bonuses for top executives.


April 1998

HUD announced a $2.1 billion settlement with AccuBanc Mortgage Corp. for alleged discrimination against minority loan applicants. The funds would provide poor families with down payments and low-interest mortgages.


Fall 1999

Treasury Secretary Lawrence Summers issued a warning: "Debates about systemic risk should also now include government-sponsored enterprises, which are large and growing rapidly."


September 1999

With pressure from the Clinton administration, Fannie Mae eased credit requirements on loans it would purchase from lenders, making it easier for banks to lend to borrowers unqualified for conventional loans.



The Senate Banking Committee estimated that, as a result of CRA, $9.5 billion had gone to pay for services and salaries of ACORN and other organizers.


Winter 2000

The City Journal warned that the Clinton administration had turned CRA into "a vast extortion scheme against the nation's banks," committing $1 trillion for mortgages and development projects, most of it funneled through the community organizers.


March 2000

Rep. Richard Baker, R-La., proposed a bill to reform Fannie and Freddie's oversight in a House subcommittee on capital markets. Rep. Frank dismissed the idea, saying concerns about the two were "overblown" and there was "no federal liability there whatsoever."


June 2000

Competitive Enterprise Institute President Fred L. Smith Jr. on the Treasury Department's $2 billion line of credit to Fannie and Freddie: "As long as the pipeline is there, it is like it is very expandable. ... It is only $2 billion today. It could be $200 billion tomorrow." Because of Democrat obfuscation, Smith's "tomorrow" arrived in 2008, when Treasury Secretary Henry Paulson put Fannie and Freddie into conservatorship.


April 2001

The White House, releasing the 2002 budget, declared that the size of Fannie Mae and Freddie Mac is "a potential problem" because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting federally insured entities and economic activity."


February 2003

Fannie and Freddie's regulator warned that unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market.


June 2003

Freddie Mac reported it had understated its profit by $6.9 billion.


July 2003

Sens. Chuck Hagel, R-Neb., Elizabeth Dole, R-N.C., and John Sununu, R-N.H., introduced legislation to address regulation of Fannie Mae and Freddie Mac. The bill was blocked by Democrats.


September 2003

Treasury Secretary John Snow testified that Congress should enact "legislation to create a new federal agency to regulate and supervise the financial activities of our housing-related government-sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements. But Rep. Frank replied: "I do not think we are facing any kind of a crisis."


October 2003

Fannie Mae disclosed a $1.2 billion accounting error.


November 2003

Greg Mankiw, chairman of the president's Council of Economic Advisers, warned: "The enormous size of the mortgage-backed securities market means that any problems at the GSEs matter for the financial system as a whole. "


September 2004

Regulators reported that Fannie Mae and CEO Franklin Raines had manipulated the agency's accounting to overstate its profit. Fannie Mae ran radio and TV ads ahead of a key Senate committee meeting, depicting a Latino couple who fretted that if the bill passed, mortgage rates would go up. Again, GSE pressure prevailed.


October 2004

Rep. Baker again warned about the coming crisis: "Although their bonds bear the disclaimer 'not backed by the full faith and credit of the U.S. government,' the market does not believe it and looks right past the companies' risk strategies to the taxpayers' pockets."


Rep. Waters said: "Through nearly a dozen hearings ... we were trying to fix something that wasn't broke. ... We do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Mr. Frank Raines."

Rep. Christopher Shays, R-Conn.: "And you have about 3% of your portfolio set aside. If a bank gets below 4%, they are in deep trouble. So I just want you to explain to me why I shouldn't be satisfied with 3%?"


Fannie Mae CEO Raines: "Because ... there aren't any banks who only have multifamily and single-family loans. These assets are so riskless that their capital for holding them should be under 2%."


January 2005-July 2006

Sen. Hagel, with Sens. Sununu and Dole and later Sen. John McCain, R-Ariz., reintroduced legislation to address GSE regulation.


Fed Chairman Alan Greenspan testified that the size of GSE portfolios "poses a risk to the global financial system. It would be difficult, if not impossible, to bail out the lenders (GSEs) ... should one get into financial trouble."


January 2006

Greenspan, in a letter to Sens. Sununu, Hagel and Dole, warned that the GSEs' practice of buying their own mortgage-based securities "creates substantial systemic risk while yielding negligible additional benefits for homeowners, renters or mortgage originators."


March 2006

Sens. Sununu and Hagel introduced an amendment to a Lobbying Reform Bill directing GAO to study GSE lobbying and requiring HUD to audit the GSEs annually.


May 2006

After years of Democrats blocking legislation, Sens. Hagel, Sununu, Dole and McCain wrote a letter to Majority Leader Bill Frist demanding that GSE regulatory reform be "enacted this year" to avoid "the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole."


John McCain addressed the Senate: "Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were 'illusions deliberately and systematically created' by the company's senior management.


"Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. ... OFHEO's report solidifies my view that the GSEs need to be reformed without delay."


April 2007

Sens. Sununu, Hagel, Dole and Mel Martinez, R-Fla., reintroduced legislation to improve GSE oversight.


The New York Times wrote that the "democratization of credit" is "turning the American dream of homeownership into a nightmare for many borrowers." The "newfangled mortgage loans" — called affordability loans — "represent 60% of foreclosures."


September 2007

President Bush: "These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs. ... The United States Senate needs to pass this legislation soon."



The housing bubble began to burst, bad mortgages began to default, and finally the Fannie Mae and Freddie Mac portfolios were revealed to be in collapse. And the testimony is evident as to why.


As Peter Wallison of the American Enterprise Institute put it, "Fannie and Freddie were ... the poster children for corporate welfare."


September 2008

Rep. Arthur Davis, D-Ala., now admits Democrats were in error: "Like a lot of my Democratic colleagues, I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable homeownership when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit when it comes to Fannie and Freddie: We were wrong."


Today 2008

The narrative is of another failed socialist experiment, this time a massive federal effort imperiling the whole U.S. banking industry.


Top recipients of contributions from Fannie Mae and Freddie Mac since 1989:

• Sen. Christopher Dodd, D-Conn.: $165,400.

• Sen. Barack Obama, D-Ill.: $126,349.

• Rep. Barney Frank, D-Mass.: $42,350.




Look at the links at to get a more detailed account of what is reported above. - Gary L. Morella


Economic Meltdown Fueled By Barney Frank and Christopher Dodd

As our nation faces a serious economic crisis in 2009, Americans need to understand the origins of this crisis.


Andrea Lafferty


The subprime mortgage crisis fueled instability in other sectors of the economy and has led a crisis in the banking industry, housing industry, auto industry – and is resulting in the layoffs of millions of Americans. A subprime mortgage is one granted to individuals with a bad credit history or no credit history. They were given no-money-down, low interest, or interest-only loans.


Democrats effectively blamed President Bush for the economic crisis and this propelled Obama into office as President of the United States for the next four years.


Is President Bush to blame? No.  It was Democrat leadership going back to the Carter Administration that created this economic disaster.


The fact is that the roots of this economic crisis go back to the Clinton and Carter Administrations , the radical group ACORN, and Rep. Barney Frank (D-MA) and Senator Christopher Dodd (D-CT).


Here are the facts:


  • Under President Jimmy Carter, the Community Reinvestment Act (CRA) was passed. It required federal financial institutions to encourage banks to give home loans to persons with little credit and low income. Economist Russell Roberts said that the CRA played a major role in creating the sub-prime mortgage crisis in the U.S.
  • Under Bill Clinton, the CRA was expanded and Clinton set targets for low-income home ownership at the Department of Housing and Urban Development and at Fannie Mae and Freddie Mac. Banks were forced by the federal government to provide bad loans to unqualified people.
  • Rep. Barney Frank (D-MA) is Chairman of the Financial Services Committee in the House of Representatives. In 2003, he said of Fannie Mae and Freddie Mac: “These two entities  – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” In the late 1980s and early 90s, Frank was engaged in a sexual relationship with Herb Moses, who was Fannie Mae’s assistant director of product initiatives! Bill O’Reilly exposed Frank’s involvement in the mortgage crisis: YouTube - O 'Reilly - Barney Frank Had Affair with Fannie Mae Exec. Frank looked the other way, while our economy was being destroyed by federal policies created in Clinton and Carter Administrations. (Freddie Mac and Fannie Mae help fund the homosexual agenda.
  • In 2008, Freddie gave $20,000 to a Parents and Friends of Lesbians and Gays (PFLAG) event; Fannie Mae gave nearly $19,000 to the same event.  Freddie has donated $125,000 and Fannie donated $80,000 to homosexual groups since 2005.)
  • Senator Christopher Dodd (D-CT) is head of the powerful banking committee in the Senate. He and Barney Frank consistently resisted attempts by the Bush Administration to closely regulate Fannie Mae and Freddie Mac. Dodd also got preferential treatment from Countrywide on two mortgages. Countrywide was one of the biggest subprime providers.
  • Barney Frank and Christopher Dodd received thousands of dollars in contributions from Fannie Mae and Freddie Mac over the years. Dodd has received $133,900 since 1989; Frank received $40,100. (While in the Senate, Barack Obama received $105,849).
  • As long ago as 2003, President Bush was trying to get the House and Senate to carefully monitor the actions of Fannie Mae and Freddie Mac. His efforts were rejected by Democrats. 
  • Obama associates headed Fannie Mae and Freddie Mac during the years that the crisis was getting out of control. Obama friend Franklin Raines ran Fannie Mae and collected $50 million from it. Obama friend Jamie Gorelick worked for Fannie Mae and earned $26 million; Jim Johnson, formerly Obama’s vice president search committee chairman, hauled in millions from his work with Fannie Mae as CEO.
  • ACORN, the socialist group that routinely engages in voter fraud, was involved in pushing for risky loans to people with bad credit histories or little money for down payments. ACORN intimidated banks in Chicago and elsewhere to give risky loans! Obama actually trained ACORN workers when he was a community organizer in Chicago! ACORN used provisions of the Community Reinvestment Act to delay or halt efforts of banks to merge or expand until they had lowered their credit standards!


The financial mess we face now was created by Democrats and friends of Barack Obama over the past two decades. Yet, President Obama now pretends that his economic stimulus package will solve our crisis. What we’re now facing is four years of Obamunism – socialism with an Obama smirk.


The Congressional Budget Office (CBO) analysis of his stimulus package says that his nearly trillion dollar spending bill will do little or nothing to create or maintain jobs for the American worker! It will, however, enrich groups like ACORN and serve as a piggy bank for state and local communities to use for whatever projects they want. The money isn’t going for jobs creation but for government projects – including paying for sod for the Washington Mall.


Additional Resources:
McCain Warned About Economic Collapse Over Two Years Ago
Planting Seeds of Disaster by Stanley Kurtz on National Review Online - Obama Stimulus Package Really Socialism? - Glenn Beck
RealClearPolitics - Articles - Do Facts Matter? - Barney Frank's Ex-Boyfriend Worked for Fannie
YouTube - O 'Reilly - Barney Frank Had Affair with Fannie Mae Exec - Lawmaker Accused of Fannie Mae Conflict of Interest







The Meltdown Was No Surprise
Peter Schiff on what we knew, and when we knew it.


And the bigger problem here was the lenders. And I knew that when the real-estate bubble burst, that was going to be the end of it. Because I knew that the banks and the financial institutions had, as the bedrock of their assets, all these IOUs, all these mortgages.


Well, if the mortgage holders don't pay, then the assets aren't worth what everybody thinks they are, which means the banks are undercapitalized.


And I knew, just by looking at it, that Fannie and Freddie were going to have to go bankrupt. I knew they guaranteed 50 percent of the mortgages, and I knew that those mortgages were not worth anywhere near what Fannie and Freddie thinks.


I knew what people were borrowing to buy these houses, so I knew that ultimately, when people didn't pay, the companies would have to go under.


And I knew about the securitization process. I knew because, at the time, I was helping a guy set up a hedge fund in 2005 that was shorting subprime mortgages. And I learned about the whole securitization industry. And I knew that there are a lot of people that owned these structured products, which was one of the main reasons that there was a market for them.


The reason that it was so easy for people to borrow all this money to buy houses was because of securitization.


At first it started with Freddie and Fannie. If it wasn't for Fannie Mae and Freddie Mac, Americans couldn't have borrowed all this money to buy houses. The only reason they did it was because the US government was co-signing their mortgages.


And people knew, well, if you lend somebody money to buy a house and if they can't pay you back, the government will pay you back. And, so, people were able to borrow a lot more money than a free market would have allowed because the government was there co-signing it.


But there were some mortgages that the government wouldn't co-sign; these were the ones known as the subprime mortgages. But Wall Street figured out that, well, we can securitize these mortgages; the government won't guarantee them, but we're going to buy them all up and put them into these structured products, and by structuring them like this we're going to reduce the risk.


And it was crazy, but something like, after they sliced and diced them, better than two-thirds of these subprime mortgages — and these are mortgages where people put nothing down — have lousy FICO scores, don't have jobs, are in prison, whatever it was.


These mortgages, two-thirds of them were rated Triple A. Triple A. How can that be? I said, "How can you take all these lousy mortgages and they're rated Triple A?"


Well, but it was because Wall Street was able to securitize all these bonds and sell them to the Japanese and sell them to the Chinese and sell them to the hedge funds that there was demand.


And, of course, why was there so much demand for high-yielding assets? Because the Fed had the interest rate too low. Everybody needed yield and they were willing to take risk to get it.


And where did all these foreign central banks get all this money that they recycled back into these bonds? Because of our trade deficits, because rates were too low. So you had the government perpetuating this crisis and you had the attitude that real-estate prices couldn't fall.


I remember I had a booth, I had a booth in Phoenix, Arizona, at an investment conference. This is probably back in 2004, 2005.


There was a guy right in a booth next to me, and he had a real-estate company. And what this guy did was he put people together who had lousy credit and who couldn't buy homes with people who had good credit.


And the people with good credit co-signed the loans for the people with lousy credit. And, therefore, now this guy with bad credit can get a house, and the other guy got some extra payments or whatever it was.


But there was one flaw in his whole argument. And I said to him, I said, "Well, what if the guy, this dead-beat person that can't get a loan but your client is co-signing, what if that guy doesn't pay? What happens to your client? Doesn't he lose money?"


He said, "Well, then we just sell the house."


I said, "Okay, but, what if the house goes down?" And he looked at me like I was from Mars. And he said, "This is Phoenix." He says, "Real-estate prices don't go down in Phoenix." And I imagine how many people lost a ton of money there, because that's probably one of the worst housing markets in the country.


So Wall Street, everybody had this idea that housing prices couldn't go down. So nobody questioned these Triple A ratings. It didn't matter, because if somebody defaulted, you had the house to sell.


But I knew that housing prices were going to fall. I remember when I would go on television and talk about housing prices falling and people would say, "Well, that's not going to happen, that hasn't happened since the Great Depression, that's impossible."


But people would ignore everything that had happened in the last five years. They would see, here was housing prices, it was like this, and it went straight up. And they said, "Well, because they've never fallen, they can't fall." I said, "But they've never done this. How are they going to stay up here?"


You know, they were saying it was like a permanent plateau. I said, "Look," I said, "There's no way."


And, of course, everybody now, in hindsight, everybody wants to criticize the laxed lending standards, the lack of a down payment. Everybody knows all these things that we did that we did wrong — that we had too many people buying houses and credit was too cheap. So everybody can agree that we need to go back to a prudent form of lending.


But nobody wants to go back to prudent pricing. Everybody wants to go back to sound lending principles but leave the bubble prices intact. That's impossible. It's impossible. How can we? Nobody can afford to pay these high home prices without these gimmicks.


But the reality is, of course, the best thing that can happen to the real-estate market is that prices come down.


It used to be that the mission of Freddie/Fannie, before they went broke, was to try to make homes, homeownership affordable. Now their mission is to keep home prices high, to keep homes unaffordable, to make sure we have to mortgage ourselves to the hilt to buy a house.


The government solution is high prices but low mortgage payments subsidized by the government. The free-market solution is low prices. Because if real-estate prices go down, you don't need to borrow that much money to buy a house. So it doesn't matter that your mortgage payment is a little higher.


But the government still looks at the problem that home prices are falling. That's the solution. The problem is that they went up.


So, the problem, and the real problem that we have, of course, is now that the bubble has burst — first from the stock market, now the real-estate market — and now that we're having this massive recession, which is just getting started, we've barely gotten a taste of it. But, unfortunately, all the blame is on the free market. All the blame is on capitalism. It's because there wasn't enough regulation. There was too much greed. Right?


And Alan Greenspan, or, not Alan Greenspan. President Bush, in one of his speeches, said that Wall Street got drunk. And he was right, they were drunk. So was Main Street. The whole country was drunk. But what he doesn't point out is, where'd they get the alcohol? Why were they drunk?


Obviously, Greenspan poured the alcohol, the Fed got everybody drunk, and the government helped out with their moral hazards, and the tax codes, and all the incentives and disincentives they put in — all the various ways that they interfered with the free market and removed the necessary balances that would have existed, that would have kept all this from happening.


We've always had greedy people. Everybody's been greedy, not just Wall Street. But all of a sudden everybody was greedy all at the same time? Can't they understand there's a trigger for this, there's a reason that everybody acted this way?


Normally, when people are greedy, they're also fearful of loss, and people's fear of loss overcomes their greed and checks their behavior. But what the government did, repeatedly, was try to remove the fear — they tried to make speculating as riskless as possible.


First, they provided us with almost costless money with which to speculate. And then they created the idea or the Greenspan Put. But whenever there's a problem, don't worry, the government is going to rescue you.


The government's not going to let the stock market go down. The government's not going to let your bets go bad, so go ahead and keep placing them. That was the idea, that was the mentality. It was nothing that the free market did.


In fact, the only entities that needed more regulations were the ones that the government created, Freddie and Fannie.


I mean, if Freddie and Fannie didn't have a government guarantee, they wouldn't have needed any regulation because the market would have regulated them. People would have looked at their balance sheet and said, "Hey, you don't have any capital, you can't guarantee these mortgages, who are you kidding?" And they never could have expanded the way they did.


It was only because the government stood behind them that people didn't care. People said, "Oh, the government will never let Fannie and Freddie go bankrupt." And they were right, they didn't.


That was the question. We didn't know. When I wrote Crash Proof and I said they were going to go bankrupt, I didn't know the answer to that question. I said, we don't know: is the government going to let them fail or is the government going to stand behind them? And I knew the worst thing was that they stood behind them.


Baldwin Blames Financial Crisis on Clinton, Dems and Barney Frank

Photo of Noel Sheppard.

By Noel Sheppard (Bio | Archive)
October 4, 2008 - 10:47 ET

If a Bush-bashing, Republican-hating nincompoop like Alec Baldwin understands that Democrats are responsible for the current financial crisis, and is willing to say so on national television, why can't America's so-called "real" journalists?


Although it seems unlikely that Baldwin watches "The Factor," it is awfully coincidental that roughly 24 hours after Fox News's Bill O'Reilly tore Rep. Barney Frank (D-Mass.) apart for his role in propping up Fannie Mae and Freddie Mac, the typically inept Baldwin, appearing on HBO's "Real Time," not only pointed fingers at Frank for the current crisis, but also blamed former President Clinton and fellow Democrats.


...  A man who typically seems incapable of finding the floor when he wakes up in the morning clearly understands the current financial crisis better than the overwhelming majority of Obama-loving sycophants in the press.


Although this occurred on a political comedy talk show, the joke is really on us for if the media were actually doing their jobs, we might be talking about the possibility of a Republican landslide at the polls next month rather than Obama taking over the White House with a filibuster-proof majority in the Senate.


As such, before we applaud Baldwin for doing what so few in the press are willing to, we should still be asking ourselves why the truth being uttered on national television should be at all so surprising.


For the record, what Baldwin was referring to was 1999's Financial Services Modernization Act -- better known under the names of its authors Gramm-Leach-Bliley -- which, amongst other things:


  • Repeal[ed] the restrictions on banks affiliating with securities firms contained in sections 20 and 32 of the Glass-Steagall Act.
  • Create[d] a new "financial holding company" under section 4 of the Bank Holding Company Act. Such holding company can engage in a statutorily provided list of financial activities, including insurance and securities underwriting and agency activities, merchant banking and insurance company portfolio investment activities. Activities that are "complementary" to financial activities also are authorized. The nonfinancial activities of firms predominantly engaged in financial activities (at least 85% financial) are grandfathered for at least 10 years, with a possibility for a five year extension.


For those unfamiliar, the Glass-Steagall Act was the 1933 legislation separating the functions of banks, brokerage firms, and insurance companies designed to prevent another crash like what occurred in 1929. Congress has been whittling away at these restrictions since 1980, and finally removed the last vestiges with Gramm-Leach-Bliley in 1999.


Readers are advised that this bill passed by a vote of 362-57 in the House, and 90-8 in the Senate. As such, it passed with overwhelming bipartisan support.


Maybe more important, as it was signed into law on November 12, 1999, despite all the blame disgraceful Democrats and media members have been assigning President Bush during this financial crisis, he had ABSOLUTELY NOTHING to do with the legislation that allowed financial institutions to engage in the activities that have led to and caused the current banking and lending meltdown.


Absolutely nothing.

That someone as intellectually challenged as Alec Baldwin knows this, while virtually no major mainstream press members other than those on Fox News either do or are willing to admit it, is truly disgraceful.


October 17, 2008


Big-government fingerprints on murder weapon


by Ernest Istook


Whose fingerprints are on the weapon that murdered the U.S. economy?


Multiple culprits deserve blame, but the Clinton administration stands out as a ringleader for diverting billions of dollars into junk sub-prime mortgages. Those loans have fouled the economy and siphoned away the capital needed by businesses and families today.


Government created a quota system that required lending to people who lacked the ability to repay.


Clinton's HUD (Department of Housing and Urban Development) decreed that big chunks of mortgages must be issued to borrowers with poor finances. It started at 12 percent of all Fannie Mae and Freddie Mac mortgages in 1996. By 2008, that proportion had more than doubled, to 28 percent.


Because Fannie and Freddie dominated the mortgage market, holding about $5 trillion in mortgages, they effectively dictated mortgage standards. The result: Their misguided practices rippled through lenders across the country. If banks made a sub-prime loan, they could re-sell it to Fannie and Freddie. And unless banks made those loans, there was a limit to other loans that would be bought.


As HUD wrote in a 2004 report, explaining its post-1996 quotas:


HUD's ... Regulation imposes no requirement for the total number of home purchase mortgages that a GSE [Government-Sponsored Enterprise] must buy. Rather, the rule provides that, however many home purchase loans in metropolitan areas the GSEs buy, a certain percentage must be in each goal category. For example, if a GSE buys 1 million home purchase mortgages in metropolitan areas in 2005, then 450,000 of these mortgages would need to be for low- and moderate-income families.


Under that scenario, for each million loans made in 2005 (when the "very low-income" goal was 22 percent), then 220,000 of those mortgages were required by federal regulation to be among the "special affordable" sub-prime group. Since Fannie and Freddie bought hundreds of billions in mortgages each year, this 22 percent quickly became a huge mandate to make poor-quality loans.


Lenders complied by creating the infamous zero-down loans and other loans that proved to be junk. This wasn't a failure to regulate. It was a failure by regulating too much!


Many motives were commendable, of course. The American dream of home ownership is common to all races, classes and income levels. But so, too, is the ability to get in over your head.


So how low was low-income to our government? "Very low-income," also called "special affordable loans," was defined as having less than 60 percent of an area's median income. Just being below the median alone put a household in the bottom half of income. Being in the bottom third of the bottom half was scraping along compared to most folks.


Local medians vary. Census numbers show a median range from $44,000 for a family of three in Arkansas to $81,000 for a family of three in Maryland. (These are 2008 dollars). Living on 60 percent of that would be $26,400 to $48,600, with all sorts of levels in-between, depending on locality.


Fannie and Freddie complied with HUD's requirements, increasing their sub-prime loans year after year. They didn't mind. Indeed, they and their congressional supporters bragged about it.


Protected by their political friends, especially in Congress, Fannie and Freddie not only met their quotas for backing home loans to people who couldn't afford houses, they surpassed them. In 2004, 24.2 percent of their mortgages went to very low-income families, beating the goal of 20 percent. The following year they bested the 22 percent goal, hitting 24.5 percent. In 2006 they smashed the 23 percent goal with 26.46 percent. A year later they slipped, but still exceeded the 25 percent goal with 25.65 percent.


Helping out was the controversial group ACORN, which joined other community organizations in channeling potential borrowers to banks that would make these special loans. Of course, ACORN and the other enablers received handsome fees for this effort.


But it wasn't a kindness to help poor people get into a house, only to be evicted because they couldn't pay. It was a setback to them.


So, what if Fannie and Freddie had balked, rather than happily complied? Ultimately, the law created penalties that could reach $25,000 each day if they were not aggressive enough in marketing mortgages to those who had limited ability to pay.


This quota system for mortgage loans began when Congress in 1992 created the requirement that Fannie and Freddie must back loans to very low-income persons. However, the legislation specified only that this goal must be "not less than 1 percent." Starting at 12 percent and scaling up to 28 percent, the Clinton administration went above and beyond this. And the Bush administration did not reverse that course.


The left is aggressively working to convince America that a "failure to regulate" made lenders go crazy and wreck our economy through greed. The truth is that our economy was legislated and regulated into this mess. Even if our economy isn't already regulated to death, it's still attempted murder.




October 15, 2008


The CRA Cover-Up


by Ernest Istook


As always, it's the cover-up that sinks people. Liberals are working overtime to cover up their role in the mortgage meltdown. Not only did they block attempts to reform Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac before they could drag down our economy, but liberals also abused the Community Reinvestment Act (CRA), turning it into a vehicle for directing loans to unqualified homebuyers. The left knows that whoever shapes public understanding of what caused today's economic crisis can shape America's politics -- and its future -- for a great many years to come. Thus, they're pushing the notion that too little government regulation was at fault.


If the country buys this idea, liberals can enact a carbon-copy of FDR's response to the Great Depression, building a larger, more activist and ever-more-controlling federal government. They can exploit the mess by establishing a conventional wisdom that more government is the solution, rather than understanding how big government is a root cause of the current financial meltdown. Claiming it all sprung from a lack of regulation is a half-truth, and a Yiddish proverb says a half truth is a whole lie. Over-regulation opened the money spigot by requiring lenders to make poorly underwritten loans. Under-regulation then allowed politicians to exploit that. Although greed and dishonesty among both borrowers and lenders had major roles, the CRA and the GSEs were at the heart of what happened, setting up the now-toppled dominoes of Bear Stearns, Lehman Brothers, and others. Over-regulation through CRA, aided by HUD, became a huge problem and, alas, wasn't even addressed in the multi-billion dollar bailout. The Clinton Treasury Department's tough new regulations in 1995 compelled the banks to engage in far-riskier lending practices or receive a failing CRA grade.


To avoid an "F" from the CRA, which could jeopardize their viability, the banks were pressured to direct hundreds of billions of dollars in high-risk mortgages to inner-city and low-income neighborhoods. Moreover, under CRA pressure, banks would "hire" radical, non-profit groups like ACORN to find them customers. Once trillions of dollars began to flow, politicians and lobbyists tapped into this stream, and so did left-wing activist groups. According to George Mason University's Russell Roberts, the CRA was buttressed by other new regulations during the Clinton Administration. As Roberts writes, "For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42 percent of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50 percent in 2000 and 52 percent in 2005. For 1996, HUD required that 12 percent of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60 percent of their area's median income. That number was increased to 20 percent in 2000 and 22 percent in 2005. The 2008 goal was to be 28 percent." The banks were kept from rebelling by using Fannie Mae and Freddie Mac's deep pockets to buy these poor-quality loans and take them off the banks' books. Under-regulation of the GSEs -- Fannie Mae and Freddie Mac -- allowed the money stream to widen and keep flowing. There has always been an implicit understanding that taxpayers would cover GSE losses and this enabled them to attract money and pour it into the CRA-induced sub-prime market.


The Bush Administration had warned about this for years. Fannie and Freddie, however, could skim enough to pay for political protection, plus pay sky-high executive salaries and bonuses to well-connected political figures. Over the past decade, Fannie and Freddie combined to spend a reported $200 million on lobbying and campaign contributions. Now bailing them out may cost taxpayers $200 billion directly, and far more indirectly. The circle of political back-scratching centered around the theme of affordable housing, which the GSEs marketed heavily.


Politicians wanted housing for low-income and poor credit risks, so they used Fannie and Freddie to further that objective, and the GSEs responded with campaign help for those politicians. In return, politicians resisted reforms. This was demonstrated at a 2004 House hearing, where Rep. Maxine Waters (D.-Calif.) denounced attempts to stiffen oversight and regulation of this duo "so as not to impede their affordable housing mission, a mission that has seen innovation flourish, from desktop underwriting to 100 percent loans." "Desktop underwriting" meant undocumented loans. No proof of income or credit history required. And zero down payment.


Members of both parties were involved in protecting the system. But liberal Democrats were the dominant force. Recently, House Financial Services Chairman Barney Frank (D-Mass.) told The Boston Globe, "[Republicans'] failure to regulate sensibly ... endangered the economy and ... burdened it with bad stuff.... Their own philosophy blew up in their face. They were so extreme in their insistence that there be no government intervention that they have wound up provoking far more government intervention than the Democrats ever would have." But Frank is covering up his own role because he sang a far different tune in 2003, when the Bush Administration and many Republicans (including Sen. John McCain) tried to require Fannie and Freddie to comply with Securities and Exchange Commission regulations and other additional oversight requirements. Treasury Secretary John Snow, in fact, had specifically warned Congress that Fannie and Freddie needed a new supervisory structure so that both institutions would "maintain capital and reserves sufficient to support the risks that arise or exist in its business." Rep. Frank was unconcerned. He told a hearing, "Fannie Mae and Freddie Mac are not in a crisis." Rather, he said, they were "fundamentally sound," and criticisms of them were unjustified exaggerations and "disaster scenarios." Then he confirmed why: "The more pressure there is [to regulate] then the less I think we see in terms of affordable housing" He wanted to continue both the giveaway train supplying mortgages to those who couldn't afford them and the gravy train for politicians. This appealed to liberals and in particular to the Congressional Black Caucus, which received six-figure support from both Fannie and Freddie in 2007. The GSEs' major campaign largesse went to well-placed friends in key positions. The top six from 1998 thru 2008, according to the Center for Responsive Politics: Sen. Chris Dodd (D.-Conn.) $165,400 Sen. Barack Obama (D.-Ill.) $126,349 Sen. John Kerry (D.-Mass.) $111,000 Sen. Robert Bennett (R.-Utah) $107,999 Rep. Spencer Bachus (R.-Ala.) $103,300 Rep. Roy Blunt (R.-Mo.) $ 96,950 And almost everyone in Congress got something.


The GSEs lobbied hard, too. Their combined lobbying budget averaged $17 million a year. As described by Rep. Chris Shays (R.-Conn.), "They hire every lobbyist they can possibly hire. They hire some people to lobby and they hire other people not to lobby so the opposition cannot hire them." But friends at the top were not enough. They needed them in every community, too. The Community Reinvestment Act guaranteed a steady stream of low-quality, but highly political, loans. Congress passed the CRA in 1977 to combat "redlining," a lending practice that prevented loans to minority communities. Clinton Administration regulations in the '90s added teeth to CRA, requiring banks to show compliance with meeting low-income loan targets or face civil actions that could assess a $500,000 penalty for each violation. Banks were "encouraged" to comply by hiring community groups (including ACORN) who contracted with financiers to steer low-income applicants to their institutions. As the Manhattan Institute's Howard Husock wrote in 2000: "The Senate Banking Committee has estimated that, as a result of CRA, $9.5 billion so far has gone to pay for services and salaries of the nonprofit groups involved." The left created the system that paid its community organizers very handsomely, thanks to the regulations on the financial community.


As The Heritage Foundation's J.D. Foster recently noted, "While a worthy cause, the net effect [of CRA] is often to encourage loans at lower credit standards and to encourage people to buy houses they really cannot afford." The net effect has also brought the economy to the brink of disaster. But unless the American public is told, re-told, and educated about how we got here, there won't be reform of the bailed-out-but-still-alive GSEs nor of the CRA. Then we would witness more big government, giving us far more help than we can afford.



Despite Media 'Mythmaking,' Capitalism Didn't Fail
Free-market economists blame government actions taken during Carter, Clinton for financial crisis.

By Julia A. Seymour
Business & Media Institute

10/1/2008 2:26:24 PM

     Speaker of the House Nancy Pelosi blasted free market capitalism (and the GOP) in front of the entire nation on Sept. 29 as the debate raged over a potential $700 billion bailout.


     “They claim to be free market advocates when it’s really an anything goes mentality. No regulation, no supervision, no discipline,” Pelosi said, according to CBS “Evening News” that night.


     But did deregulation and “unfettered capitalism” really lead to the financial crisis gripping Wall Street? The answer is yes, according to politicians on both sides of the aisle and the news media. They’re wrong, according to many economists including George Mason University economist Dr. Don Boudreaux who called it “utter mythmaking.”


     The networks have also attacked free markets and blamed a lack of regulation for the current Wall Street problems – but haven’t explored regulations that actually created them.


     Former and current anchors and reporters including Sam Donaldson, Chris Cuomo, Carl Quintanilla and others bashed the free market and deregulation in September. In contrast, the three broadcast networks didn’t talk about the Community Reinvestment Act of 1977 during the month, even though economists argue that CRA generated many of today’s financial problems.


     CNBC’s Jim Cramer admitted his predisposition toward regulation on ABC’s “Nightline” Sept. 17.


     “I wanted a more proactive government, one that’s less ideological, so to speak. One that is more regulatory. These guys were not inclined to do that. They actually – and I still hear them do it. They believe in the market,” Cramer said.


     The host of “Mad Money” has been all over the mainstream media lately. He’s been interviewed by ABC, NBC and CNBC about the financial situation. Cramer was even on Martha Stewart’s show to repair chairs on Oct. 1.


     Both senators vying for the presidency have blamed deregulation and Wall Street “greed” for the monetary mess. According to Sen. Barack Obama, D-Ill., under the Bush administration, “we’ve had policies that have shredded consumer protections that have loosened oversight and regulation.”


     Sen. John McCain’s, R-Ariz., rhetoric wasn’t much different. McCain denounced “mismanagement and greed [that] became the operating standards while regulators were asleep at the switch” and lashed out at Securities and Exchange Commission chairman Christopher Cox on Sept. 18.


     The New York Times reported that Cox, a regulator, was arguing for more regulation, according to a Sept. 27 Times article titled “S.E.C. Concedes Oversight Flaws Fueled Collapse.” An MSNBC subhead summarized the argument: “Crisis sparks anger over executive salaries, lax regulation.”


     Despite the anti-free market tone of many network stories about the financial crisis there are still many defenders of capitalism. Economists and other experts argued on, and in the editorial pages of The Wall Street Journal and Investor’s Business Daily (IBD) that the economic turmoil facing the U.S. was actually caused by government regulation.


     Economist and Business & Media Institute advisor Dr. Walter E. Williams explained in a Sept. 17 column that the “credit crunch and foreclosure problems are failures of government policy.”


     What “foolhardy government policy” was Williams referring to? The CRA, which “intimidated lenders” into offering credit to more people and specifically “discourages them from restricting their credit services to low-risk markets, a practice sometimes called redlining.”


     Thomas J. DiLorenzo of the Von Mises Institute called CRA “extortion” on banks in an April 30 article. That story explained that CRA was created during the Carter administration and in order to comply with the regulation mortgage securitization exploded during the 1990s as a result of government regulation.” Securitization bundling was an attempt to diversify risks from loans made to high-risk borrowers.


     CRA regulation was also strengthened under President Bill Clinton in the 1990s, according to Terry Jones of IBD. His article called the subprime mortgage crisis “inevitable” after Clinton’s changes.


     Other regulations including Sarbanes-Oxley, which enforced mark-to-market accounting (fair value accounting) by imposing criminal penalties, also had a hand in this subprime crisis. Mainstream media have all but ignored the government’s role in creating the problem in favor of repeating campaign rhetoric. Network reporters didn’t mention Sarbanes-Oxley in September at all – although a couple interviewees made the connection and suggested “throwing out Sarbanes-Oxley.”



More Regulation, the only Media Option


     The same news media hawking the up-to-$700 billion bailout plan that was voted down on Sept. 29 have lambasted free markets and “deregulation” – just like politicians and left-wing bloggers.


     “Good Morning America’s” Chris Cuomo claimed Sept. 22 that “one thing your money is supposed to buy in the bailout is more regulation.” There was no question whether more regulation might be the wrong answer to the crisis.


     ABC’s “World News with Charles Gibson” found an economist to promote more regulation on Sept. 16. David Wright’s story included Tom Gallagher, a political economist with Wall Street research firm ISI Group, who said “Everybody’s for tighter regulation here.” Although Gallagher cautioned that regulation could make it harder for some people to get credit.


     CNN’s Lisa Sylvester mentioned CRA on Sept. 29 “Lou Dobbs Tonight.” But she mischaracterized as “deregulation” the 1990s changes that actually strengthened CRA rules.


     The constant assault on deregulation meant there simply was only one position to take – in favor of “re-regulation.” “Everyone is now for re-regulation,” Sam Donaldson said on ABC’s “This Week” Sept. 21. Donaldson claimed that Reagan’s deregulation had to be “cleaned” up and implied that deregulation from 1999 and 2000 caused today’s debacle.


     “We deregulated beginning ’99 and 2000, the banking industry, Phil Gramm and others, I think that Obama ad is correct. He was one of the prime movers. Now we’re gonna have to clean that up at great expense,” Donaldson said.


     CBS “Face the Nation” host Bob Schieffer even let Rep. Barney Frank, D-Mass., go unchallenged on Sept. 21.


      Frank complained about the “irresponsible decisions” of the private sector and inadequate regulation. Frank chairs the Congressional committee responsible for oversight of Fannie Mae and Freddie Mac – the two government-sponsored enterprises that were recently taken over by the U.S. government because of bad mortgage debt.


     Frank, who was involved romantically with a Fannie Mae executive for 10 years while serving on the committee, defended Fannie and Freddie against accusations of mismanagement and worked to block efforts by the Bush administration to increase regulations of the organizations.


     According to IBD, CRA turned banks into “pliable, easy targets” of groups like liberal advocacy group ACORN (Association of Community Organizations for Reform Now) and “no bank CEO wanted to be mau-maued as an enemy of the poor.”


     In the 1990s, Clinton “broadened the CRA in ways Congress never intended,” according to IBD Sept. 24. Clinton’s Housing and Urban Development secretary, Andrew Cuomo (Chris Cuomo’s brother) made changes that let Fannie Mae and Freddie Mac into subprime markets “in a big way.”


     “That’s how it began. Later, in the Clinton, era, Fannie Mae and Freddie Mac got involvedbuying up bad loans from banks, and securitizing  them for sale on world markets. The seeds of the subprime meltdown were planted,” IBD said. All on Frank’s watch.



Government Intervention – the Heart of the Crisis


     As the crisis in the financial sector took hold, the networks were quick to ask what or whom was to blame. The answer was predictable: “greed,” free markets and President Bush’s deregulatory policies.


     Brian Williams wondered “how we got here” on Sept. 15 “Nightly News.” The answer came from CNBC’s Carl Quintanilla: “Some call it payback for years of risky lending practices and weak regulation.”


     ABC’s Chris Cuomo let borrowers off the hook, but accused the government of fiddling while Rome burned on Sept. 22 “Good Morning America” segment about the possible Wall Street bailout. Cuomo criticized Wall Street bankers and scorned “government watchdogs, including the Federal Reserve and Congress looking on.”


     Asking how we got here was an essential question, but the networks only seemed to be looking for one type of answer. Instead of talking to a free market economist for another perspective, Cuomo included liberal Economic Policy Institute economist Clyde Prestowitz, who told viewers, “You had totally unsupervised markets that married with new instruments that no one understood.”


     IBD, Walter E. Williams, the Foundation for Economic Education and other economists have each said that the markets were regulated (even over-regulated) not “unsupervised,” as Prestowitz claimed.


     As for the complicated financial instruments – that’s exactly where Fannie Mae and Freddie Mac made their government-sponsored living. BMI advisor and Hillsdale College economist Professor Gary Wolfram said Fannie and Freddie were at the heart of this mess.


     According to Wolfram, market economies are “fundamentally sound.” When there are “gyrations” you should look for the government cause for the problem. In this case, Wolfram explained, “Government started out doing this by creating Fannie Mae and Freddie Mac in the first place. They became government sponsored enterprises and what happened is they went out and set up this secondary mortgage market.”


     Combined with a below inflation Federal funds interest rate, the government encouraged “excess borrowing” and “malinvestment,” Wolfram said.



Cancerous Regulation


     Another regulatory tumor that led to Wall Street’s troubles was Sarbanes-Oxley, t government regulation enacted in 2002 as a reaction to the Enron, WorldCom and other accounting scandals.


     According to a commentary from former Speaker of the House Newt Gingrich, Sarbanes-Oxley carried criminal liabilities that “have driven accountants to stricter and stricter accounting evaluations.”


     Brian Wesbury, chief economist of First Trust Advisors, told Dave Ramsey on Fox Business that the “overreach” of Sarbanes-Oxley mandated mark to market accounting – which he said made sense for liquid assets like stocks, but not for illiquid assets like bundles mortgage securities.


     “I believe mark to market accounting has created about 65–70 percent of the mess that we are in today. So it is really a reaction to Enron, an overreaction to Enron that is helping create problems today,” Wesbury said.


     Mark to market accounting requires that assets be marked for sale at whatever price the market will bear – even if you have no intention of selling those assets.


     Wesbury explained it in a Sept. 22 “Monday Morning Outlook:”


Imagine if you had a $200,000 mortgage on a $300,000 house that you planned on living in for 20 years. But a neighbor, because of very special circumstances had to sell his house for $150,000. Then, imagine if your banker said you had to mark to this “new market” and give the bank $80,000 in cash immediately (so that you would have 20% down), or lose your home. Would this reflect reality? Not at all. Would this create chaos? Absolutely.


     According to Wesbury, Wolfram and one Wall Street Journal op-ed, this is exactly what has been happening all over Wall Street.


     The fire sale prices of mortgage securities has caused markdown after markdown and unless the accounting rule is suspended “the cancer will keep spreading,” according to the William M. Isaac’s Journal op-ed. Isaac was chairman of the Federal Deposit Insurance Corp. from 1981-1985.


     “If we do not halt the insanity of forcing financial firms to mark assets to a nonexistent market rather than their realistic economic value, the cancer will keep spreading and will plunge the world into very difficult economic times for years to come,” Isaac said.


     Recognizing the problem with mark to market accounting, the SEC decided on Sept. 30 to “ease” mark-to-market rules, according to the Phoenix Business Journal.


     Yet, politicians and the networks alike are calling for another regulatory response. The trouble with that is as Hoover Institute senior fellow Richard Epstein put it, “Bad regulation metastasizes.”


Financial Affirmative Action

When the history of the Great Economic Meltdown of 2008 is written, in-your-face shakedown groups like the Greenlining Institute will be held to account.


Greenlining, headquartered in Berkeley, California (where else?), is a left-wing pressure group that threatens nasty public relations campaigns against lenders that refuse to kneel before its radical economic agenda. Its principal goal is to push politicians and the business community to facilitate "community reinvestment" in low-income and minority neighborhoods.


The Greenlining name is a play on the unlawful practice of "redlining." That's when financial institutions designate areas, typically those with a high concentration of racial minorities, as bad risks for home and commercial loans. The Institute wants banks to give a green light to loans in these areas instead.


Recently profiled by John Gizzi, Greenlining uses carrot-and-stick tactics to blackmail public agencies, banks, and philanthropists to achieve its objectives. The Institute brags it has threatened banks into making more than $2.4 trillion in loans in low-income communities.

Was this a good idea?


Not according to University of Texas economist Stanley Liebowitz. He wrote that the current mortgage market debacle is "a direct result of an intentional loosening of underwriting standards -- done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults."


Liebowitz isn't alone is pointing out that U.S. financial markets are now being asphyxiated by a terrible credit crunch that might have been avoided if lenders had refrained from doling out loans they ought to have known were doomed to default.


Activist groups were encouraged to agitate by the Carter-era Community Reinvestment Act, which enshrined in law a kind of lending protection racket. Banking regulators were given the power to make trouble for banks that failed to lend enough money to so-called underserved communities. Banks that paid enough -- whatever that means -- got left alone, but banks that didn't, got their legs broken.


How much money is enough to satisfy the law? Even the Federal Reserve Board can't say for sure. From the Fed's online summary of the Act:


The CRA requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities.


Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances.

One can almost imagine a CRA commissar saying, "It'd be a real shame if something happened to that nice bank of yours." When in doubt about potential CRA liability, don't risk committing a crime against diversity: make the loan. Or else.


After CRA came into effect, Saul Alinsky-inspired "community organizer" groups such as Greenlining, ACORN, and National Council of La Raza got into the shakedown business. They preach the hateful class-warfare rhetoric of their fellow community organizers Jeremiah Wright, Jesse Jackson, Al Sharpton, and Michael Pfleger.


They rage against capitalism and demand crushing taxes and aggressive wealth-redistribution programs. They demand more government spending on social programs, a higher minimum wage, and gun control. Depending which way the economic wind is blowing, they demand more subprime lending, or curbs on subprime lending, which through the magic of dysphemism, is linguistically transformed into "predatory lending."


La Raza ("The Race," in Spanish), which has lobbied to strengthen CRA, performed an amazing sleight of hand last year. After decades of demanding more loans for racial minorities, the group performed a dramatic about-face, suddenly warning that lenders, realtors, and investors who bought up subprime loans could be sued under a federal law that forbids housing discrimination.


It was the lenders' responsibility to "match families to the sustainable loans that they should have gotten in the first place," said Janet Murguia, La Raza's president. Pointing to 2005 data that show subprime loans with high interest rates comprised more than 50% of all mortgages taken by African-Americans and 40% of Latino borrowers, compared to 19% of white borrowers, she raised the specter of racism. Murguia failed to mention that without a subprime market many members of racial minority groups would have remained renters, unable to buy a home.


And the Greenlining Institute played rough with Rabobank, an international Netherlands-based "megabank" (assets: $740 billion) that was expanding its U.S. operations.


Even though Rabobank had received an "Outstanding" rating in its most recent CRA performance evaluation by the Federal Reserve Bank of San Francisco, that wasn't enough for Greenlining.


The group targeted Rabobank, demanding that it shell out $7.5 billion for loan programs to help farmworkers buy their own farms. When the bank balked, Greenlining launched a campaign last year against its proposed acquisition of another bank.


Activists noisily picketed Rabobank until it caved.


"Congratulations to everyone," "Rabobank is totally afraid of you," Greenlining's top legal dude Robert Gnaizda yelled in offering congratulations to at demonstrators through a bullhorn. "Rabobank is totally afraid of you." Earlier this year, Greenlining proudly unveiled what it called a "unique agreement" with Rabobank "to turn San Joaquin farmworkers into farmowners."


This is the kind of political activism that drove banks to make irresponsible decisions, and that now threatens to put taxpayers on the hook for bank bailout packages costing potentially trillions of dollars.


Even though the left's pathological preoccupation with economic egalitarianism never takes a vacation, the left isn't entirely to blame for Wall Street's current troubles.


The Federal Reserve Board encouraged bad behavior by keeping interest rates artificially low for far too long after the 9/11 attacks. Since money was cheap, bankers went overboard with exotic mortgage products, and investors kept inflating the housing bubble, sending home prices into the stratosphere.


But no one can deny the fateful role that these liberal financial activist groups played in making a bad situation much worse.




There's a Big Idea at Stake in the Democrat-Caused Financial Crisis

September 22, 2008


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RUSH:  Okay, as to the bailout here, folks, a lot of people over the e-mail are very confused about this, even some of my closest circle, because they think, "Well, the bailout's a bad idea, but what if we don't? Is everything going to crash around it? This is more nuance than, you know, just cut-and-dried, up-or-down, liberal-versus-conservatism."  I think, folks, a lot of people say, "You know, we're beyond the point of assigning blame here. That's not the problem.  What we have to do is understand what to do in the future."  Well, you can't understand what to do in the future unless you properly assign blame, and there is so much blame here.  All of this could have been avoided, were it not for liberal social engineering brought about by the Clinton administration.  It actually started with Jimmy Carter, but it intensified during the Clinton years, and the whole purpose of it, of course, was to play the race card, to get into class envy, and to go out and buy votes.  

There's a piece at today by Kevin Hassett.  Kevin Hassett is director of economic policy studies at the American Enterprise Institute.  He's also a Bloomberg News columnist, and he is an advisor to McCain. Let's be up-front in this presidential campaign.  "How the Democrats Created the Financial Crisis."  He says it's not complicated.  It really isn't complicated.  "Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally. 
Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools."

Now, there's no... AAA subprime  (laughing), uh -- Well, it's a little bit of an oxymoron.  "[I]n 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie 'continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion,
they potentially create ever-growing potential systemic risk down the road,' he said. 'We are placing the total financial system of the future at a substantial risk.' Fannie Mae and Freddie Mac. What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets. 



"If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed. But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter...." And it goes on to mention here "many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years."

It's interesting, too, you've seen the list of donations that have gone to all the Democrats of Fannie Mae.  At the top of the list of course is Chris Dodd; number two is Obama.  However, if you reorder that list and look at the people who have received the most in the least amount of time, Obama is at the top of the list by far and away.  He's been in the Senate two and a half years, and he's the leader.  Dodd got his money over the course of many years.  So you have to ask, "Why in the hell was Obama given so much money by Freddie Mac so fast, so quickly?"  The tentacles, my friends, the tentacles here -- and I say this with all candor -- reach deep into the Democrat Party.  Let's talk change for a moment.  The most important and far-reaching change needed has been brought home definitively by all this turmoil in the financial markets, precipitated by the subprime mortgage crisis.  

There is a singular culprit here, and that is it -- and there's a great idea at stake here, too, and the idea is that the free market measures itself and handles itself better than the government running.  The great idea that we're about to throw away with this bailout is that the government can run things better. The government can take care of you, the government can insure you, the government can protect you, the government can provide for you.  This is an idea which has been shown to fail around the world.  We are about to incorporate it here if this bailout goes through as designed.  This should not be a mystery anymore to anybody because the Drive-By Media refuses to do its job.  Last week the roots of this crisis were explained, and its authors were identified.  Long-serving congressmen and senators, overwhelmingly Democrats, working in concert with the liberal allies in the bureaucracies and the management of these so-called companies -- really government agencies, Freddie Mac and Fannie Mae. They're government agencies, they always have been -- and liberal special interests and advocacy groups hijacked federal housing policies and turned them into patronage programs. 
The quasi-governmental entities were at the root of this problem because what they did forced the hand of genuine private mortgage companies to conform to the same irresponsible lending policies as Fannie and Freddie had adopted if they were to survive.  And it also fostered creation of sleazy mortgage companies whose business model was making lousy loans in the expectation of being able to dump 'em later through new financial instruments that had been created just to do that, and I have just gotten started.




RUSH: This bailout crisis, my friends, it is crucial I think here to understand the truth. 
The policy perversions that led to this mess began with the active connivance of the Clinton administration and were perpetuated by leading Democrats in the House and Senate. There were some responsible Republicans supported by the Bush administration time and again attempted to avert the disaster they saw coming. They wanted new regulatory agencies and so forth, but their reform efforts were defeated in the House and the Senate.  Barney Frank in fact said, "There's nothing wrong." (doing Frank impression) "There's nothing wrong," is what he said.  Now, this emergency bailout friends can go either way.  It can fix the underlying problem or merely represent another opportunity for another leftist hijacking, and Obama and Pelosi are out there saying, they want oversight over this.  You know what that means?  

Whenever this kind of money is going to be spent by the government on something, Democrats are going to get their hands in it, and they're going to reward people like ACORN. They're going to try to.  They're going to try to build on their social programming and networking here with this kind of money outstanding that is supposedly aimed at shoring up the US economy.  Now, McCain and Palin can claim to recognize the problem, and they can commit themselves to fixing it.  But they can't deliver the needed change on their own.  They need support in the House and Senate to do that.  Right now, there is no prospect of them getting that help, not with Pelosi and that odious and compromised Barney Frank, Henry Waxman, Chuck Schumer, Christopher Dodd in the House and Senate leadership. 
The names I just gave you have their fingerprints all over this.  Plus names that you were told of last week and identified last week: Franklin Raines, Jim Johnson, Janet Reno, Jamie Gorelick.  

It is a stain, it is a stench, and it is directly traceable to liberal Democrat policies and desires.  We know who caused the problem!  We know that we can only expect the change we need by replacing them with congressmen and senators pledged to a different course with a fundamentally different concept of how the federal government can best serve the interests of the American people.  That's the change we need.  The change we need is bye-bye Barney Frank.  The change we need is get rid of Chris Dodd, get rid of Nancy Pelosi, get rid of all of these Democrats, Chuck Schumer. Get rid of all of these people.  That's the change we need, pure and simple. 
Isn't it interesting that the mortgage debacle and the resulting impact on our financial markets is said to have begun with deregulation? Ha! And isn't it interesting that no one in the administration challenges this, and of course nobody in the Drive-By Media challenges it, and McCain doesn't even challenge it.  

The reason is that we are witnessing the biggest nationalization of our economy since the Great Society and the New Deal, and we are all on the sidelines as it happens, and this is what I'm talking about this very important idea -- an idea that defines the greatness of this country -- on the line.  And that idea is that government is not the provider, the guarantor, the protector, and the redeemer for every living soul and institution in the country, particularly in this case when the problems can be traced back to people in government. 
Now the very people who created the problem have set themselves up to be in charge of the whole program, now blaming capitalism, blaming the private sector for this.  The fact is this: When Jimmy Carter was elected his first year, 1977, he and the Democrat Congress put in place the Community Development Act, and the purpose of this account was to pressure private financial institutions to make risky loans to poor people.  



That was the purpose.  These loans would not have been made based on any commonsense business model, but the Carter administration decided to hell with business models and use the law to pressure the issuance of these loans for the typical reasons liberals do these things: to buy votes, to create dependents, and to create love and respect and devotion to the Democrat Party.  Groups like ACORN -- which exist, by the way, in ACORN's case -- exist for the express purpose of committing voting fraud.  That's one of the groups that Obama, you know, worked with as a street organizer in Chicago. Groups like ACORN and others were also behind this.  They allied themselves with the Democrats and the administration and Congress.  Now, ACORN is a "grassroots" group that is backing Obama for president, they're close to him, they were close to him when he was a man of the street agitating things in Chicago.  But none of this was good enough for the Clinton administration in 1995.

A renewed and more vigorous emphasis was made on making these loans.  Janet Reno and Roberta Achtenberg (who was a former radical member of the California board of supervisors and an assistant secretary of HUD, Housing and Urban Development), put enormous pressure on financial institutions to make more and more risky loans, and they began accusing banks of redlining when they didn't meet the level of risky loans that they had imposed on them.  They then prevented these financial institutions from expanding and merging unless they met a certain level of community redevelopment loan making -- and they threatened these institutions with government action.  Reno herself said, "There will be investigations if you do not follow these regulations.  If you don't make loans to these people who essentially can't pay 'em back, we're going to investigate you, and we're going to tie you up."  

We got the quotes, from a Cybercast News Service story.  Subprime mortgages and things like them, are mortgages given to people who can't afford traditional mortgages. They can't afford down payments. They can't afford to make the going rate of interest payments.  So new types of loans were invented to get these people into homes but which were extremely risky. There were no down payments, low introductory rates, in some cases no closing costs.  Fannie Mae and Freddie Mac, in order to show ever-increasing assets on their balance sheets, would buy up these subprime loans, but the greater the asset, the executives at these government-run companies would show more assets, but they're worthless.  One of the problems now is you've got a market, but nobody knows what the market is.  There isn't a market right now.  It's tumbled.  Some people are saying that there's an outside chance that the market is so low that the taxpayer (i.e., the Treasury) could really win big with this bailout, given how little they're going to have to spend to buy up all these assets.  

But the way it worked inside Fannie Mae and Freddie Mac was this.  They loaded up on these worthless assets; they would put them, predate them into prior years so they show fantastic asset growth.  It was on the asset growth that their bonuses were determined, such as Franklin Raines and Jim Johnson and all the other people, Daniel Mudd who worked at these places who walked out of there with anything between 75 and 90 and a hundred million dollars.  Now, this is the short story behind much of the debacle that we're dealing with today.  I mean, there are other issues out there, but this is the systemic underpinning of the crisis.  All roads three-day Fannie Mae and Freddie Mac, contrary to what they're trying to make you believe -- and this is what really infuriates me and makes me passionate to get through to everybody I can.  

The issue is not a runaway, unregulated free market.  The issue is not the failure to regulate.  The issue is not stupid and crooked executives throughout the banking industry doing stupid and crooked things, although there was some of that. There's some of that in every area of life.  But that's not the cause. 
What you need to understand, my good friends, is that this situation has occurred and is occurring as a direct result of government policies: liberal government policies that were used to force the issuance of trillions of dollars in risky loans that people could not pay back.  And when they couldn't pay them back, people couldn't get the asset value that they had sold and packaged the mortgages for, and everything crashed, everything crumbled.  And about this bailout, I want to call your attention to something.

How many times in the last six months have we read stories about the Fed adding to liquidity here or helping this institution there?  We've already had a bunch of bailouts. We've already had a government stimulus package to help the US economy, and now Obama's talking about wanting another one.  These things have a history of not working.  They may show short-term relief, but over the long haul, world history is replete with example after example after example that centralized economic planning does not work.  The Democrats on Capitol Hill, and primarily I'm talking here about Chris Dodd and Barney Frank, were in the middle of this from day one.  They supported the Carter and Clinton administrations when they pressured the private sector to make these risky loans.  

They protected Fannie Mae and Freddie Mac when they bought up these risky loans -- and in 2003, when the Bush administration attempted to impose some accountability on Fannie Mae and Freddie Mac when they tried to force them to accept outside auditors, require better capitalization. You know what the leverage rate was?  They only had to have a dollar of cash on hand for every 30 bucks they had borrowed.  That kind of leverage is just obscene.  So they wanted to change that; they wanted more capitalization. 
But guess who blocked it? Good old Barney Frank and Chris Dodd stood right smack-dab in the way.  When, in 2005, Republicans in Congress tried to do the same thing, they were obstructed as well.  In fact, Chris Dodd and Barney Frank said there was nothing wrong with these government-run companies and the Republicans were trying to scare people.  

We have, now, ladies and gentlemen, a clear definition of affordable housing, according to Barney Frank.  Affordable housing is giving people houses that you and I pay for.  That's affordable housing -- and I'm not talking about, you know, tenements and housing projects.  I've heard Barney Frank talk about this enough times.  Every time he would talk about this he said, "We can't get rid of the affordable housing, affordable housing."  "Affordable housing" to Barney Frank and the liberals is making sure that every liberal Democrat in this country who can't afford a house gets one.  And then affordable housing, after they have been given the house -- under the pretext of buying it, of course -- but when they can't pay it back, guess what Barney Frank and Chris Dodd want: Let 'em stay in the house.  In this new bailout legislation, Barney says, "You can't kick them out of the house, and we want limits on CEO pay."  Any precondition on this bailout must include Barney Frank and Chris Dodd resigning.




RUSH:  Now, wait, folks.  This gets even better.  Welcome back to the Rush Limbaugh program, meeting and surpassing all audience expectations on a daily basis. 
So now we have Hank Paulson, the Treasury Secretary, ex-Goldman Sachs and a Democrat appointed by President Bush, an old buddy of Chuck-U Schumer, by the way -- and who isn't in this mess a friend of Chuck Schumer's?  Schumer was involved in all of this as well.  And now we got Hank Paulson in charge of, not elected, the most far-reaching government takeover of a huge chunk of our economy ever.

One little aside here, folks, one little aside, and I promise not to lose my place.  This amount of money that we're talking about, 700 billion -- and let's just admit it's going to be a trillion before it's all done with, okay?  Even that will pale compared to the cost of Algore's global warming plans if Democrats get their hands on that.  Global warming tactics, their plan to fix global warming will cost more than even this.  I'll have more on that in due course.  

This is the most far-reaching government takeover of a huge chunk of our economy ever, and it still isn't enough.  It's still not enough for Barney Frank.  Paulson wants a slush fund.  He basically wants $700 billion to buy up bad loans as he and only he sees fit.  Now you have Obama and Pelosi saying they want oversight.  Ha.  That means ACORN is going to get 500 mill here, some other little Democrat group, teachers union is going to get some money here, Maxine Waters is going to get about a thousand dollars for each of her constituents to pass around out in California.  I mean none of this is official, but this is the way these things work.  Now, keep in mind these are bad loans in the sense that they were risky.  But the loans have not actually defaulted yet, so unlike the savings and loan failure, this would be far more reaching.  The government's going to buy up loans before they default.  That's called affordable housing, the way the Democrats define it.  Barney Frank, among other things, says that this is unacceptable unless even more money is spent helping more people facing foreclosure.  Barney Frank's definition of affordable housing is that if they're about to be foreclosed on for not being able to pay, they get to stay in the house.  

So one of the main individuals responsible for the current financial problem, wants the American taxpayer to subsidize not only the buyout of bad loans that have yet to fail, but he wants to spend even more money to shore up these individuals who, in many cases, shouldn't have bought a house in the first place.  The left sees this as their opportunity to change the nature and identity of this economy.  And the Republicans are going right along with them, including the president, including McCain.  There's no way around this.  I mean neither of them, and no one in the party seems capable of exposing what's going on here, and opposing it.  It's not enough to say that you're against the latest bailout.  You need to explain why.  You need to stop with the populist left-wing rhetoric about needing more regulations, you gotta stop beating up on Wall Street, you gotta stop pandering, you gotta realize, Senator McCain, you are running against Obama.  You're not running against George W. Bush and Wall Street.  You are running against Senator Obama. 

Sarah Palin understands it.  She pulled your irons out of the fire and you're about to throw 'em back in.  This idea that Andrew Cuomo should be Securities and Exchange Commission chairman, that's what McCain said last night on 60 Minutes.  I kid you not, McCain would appoint Andrew Cuomo.  From The Village Voice, ladies and gentlemen, in August 5th of this year, a whole story: "Andrew Cuomo and Fannie and Freddie -- How the youngest Housing and Urban Development secretary in history gave birth to the mortgage crisis."  Andrew Cuomo is up to his neck in this.  This is a 16-page printed story on a computer printer from The Village Voice.  Cuomo jacked up low income, low mandates on Fannie and Freddie, and he is at the head of the line, too, with other Democrats on this whole crisis, and McCain talks about putting him in the -- (sigh).





Read the Background Material...


Bloomberg: How the Democrats Created the Financial Crisis: Kevin Hassett


How the Democrats Created the Financial Crisis: Kevin Hassett


Commentary by Kevin Hassett


Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.


Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.


But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.


Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.


In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.


The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point


Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.


It is easy to identify the historical turning point that marked the beginning of the end.


Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.


Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.


Greenspan's Warning


The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''


What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World


If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.


But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.


That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''


Mounds of Materials


Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.


But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.


Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.


Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.


There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.


Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.


Newsbusters: IBD: Carter More to Blame for Financial Crisis Than Bush or McCain


IBD: Carter More to Blame for Financial Crisis Than Bush or McCain

Photo of Noel Sheppard.

By Noel Sheppard (Bio | Archive)
September 20, 2008 - 15:29 ET

Much as Bush-hating media members conveniently ignore historical events that led to the invasion of Iraq in March 2003, their current finger-pointing at the White House, John McCain, and all Republican politicians for the collapse of the financial services industry lacks any honest assessment of decades-old legislation that laid the groundwork for today's problems.


In particular, 1977's Community Reinvestment Act which required banks and savings institutions to make loans to the lower-income areas in the communities they served.


Despite how integrally tied the current crisis is to this bill enacted by a Democrat-controlled Congress and signed into law by Jimmy Carter, no major media outlet other than Investor's Business Daily and National Review Online mentioned it during last week's market meltdown.


Going against the grain was a highly-informative editorial by IBD Thursday (emphasis added, h/t NBer Gary Hall, photo courtesy


To hear today's Democrats, you'd think all this started in the last couple years. But the crisis began much earlier. The Carter-era Community Reinvestment Act forced banks to lend to uncreditworthy borrowers, mostly in minority areas.


Age-old standards of banking prudence got thrown out the window. In their place came harsh new regulations requiring banks not only to lend to uncreditworthy borrowers, but to do so on the basis of race.


These well-intended rules were supercharged in the early 1990s by President Clinton. Despite warnings from GOP members of Congress in 1992, Clinton pushed extensive changes to the rules requiring lenders to make questionable loans. [...]


Failure to comply meant your bank might not be allowed to expand lending, add new branches or merge with other companies. Banks were given a so-called "CRA rating" that graded how diverse their lending portfolio was. [...]


In the name of diversity, banks began making huge numbers of loans that they previously would not have. They opened branches in poor areas to lift their CRA ratings.


Meanwhile, Congress gave Fannie and Freddie the go-ahead to finance it all by buying loans from banks, then repackaging and securitizing them for resale on the open market.


That's how the contagion began.


With those changes, the subprime market took off. From a mere $35 billion in loans in 1994, it soared to $1 trillion by 2008.


Readers are strongly encouraged to review this entire fact-filled piece to not only better understand the roots of today's financial crisis, but also to get a sense as to just how absurd media accusations of this all being Bush and McCain's fault are.


That said, from 1989 through 1995, I managed branches for two savings and loans: Imperial Savings, which got taken over by the Resolution Trust Corporation during the S&L bailout, and; Great Western Bank which eventually was purchased by Washington Mutual.


The pressure to comply with CRA was astounding, especially at Great Western as it was expanding throughout the country. Its ability to acquire other institutions was directly related to its CRA rating.


With this in mind, IBD's views concerning this matter are spot on raising a very important question: if the role of news media is to inform the public, why does a LexisNexis search indicate that as this crisis came to a head last week, its connection to CRA, Jimmy Carter, and Bill Clinton was almost completely ignored?


Would such a revelation make it difficult for Obama-loving press outlets to point fingers at George W. Bush and, more importantly, John McCain?


Yes, that's a rhetorical question.

American Thinker: Mistress of Disaster: Jamie Gorelick


September 19, 2008

Mistress of Disaster: Jamie Gorelick

By C. Edmund Wright


Ken Lay and Jack Abramoff must be green with envy over the all the mischief that has been accomplished by Jamie Gorelick, with scarcely any demonization in the press.

Imagine playing a central role in the biggest national defense disaster in 50 years. Imagine playing a central role in one of the biggest economic disasters in your country's history. Imagine doing both as an un-elected official. Imagine getting filthy rich in the process, and even being allowed to sit self-righteously on a commission appointed to get to the bottom of the first disaster, which of course did not get to the bottom of that disaster or anything else for that matter.


Imagine ending, ruining or at least causing signficant quality deterioration in the lives of millions of people, most of whom will never know your name. Imagine counting your millions of dollars while people who tried to stop you from causing all this mayhem were getting blamed for most of the ills you actually contributed to.


Well, as un-imagineable as this is, there is one American who doesn't have to imagine it. One Jamie Gorelick is this American. And without pretending that she caused the loss of countless thousands of lives and countless billions of dollars of wealth by herself, she certainly did push some of the early domino's in catastrophic chain events that are a major factors in life in America today.


This is not a bad millineums's work, when you think about it. Gorelick, an appointee of Bill Clinton, is the one who constructed the wall of separation that kept the CIA and the FBI from comparing notes and therefore invading the privacy of nice young men like, say, Muhammed Atta and Zacarius Moussaoui. While countless problems were uncovered in our intelligence operations in the wake of 9-11, no single factor comes close to in importance to Jamie Gorelick's wall.


In fact, it was Gorelick's wall, perhaps more than any other single factor, that induces some people to blame Clinton himself for 9-11 since he appointed her and she acted  consistent with his philosophy of "crime fighting." She put the wall into place as Deputy Attorney General in 1995.


And for good measure, she was appointed by Tom Daschle to serve on the "non partisan" 9-11 Commission. And we thought the fox in the henhouse was simply a metaphor. Of course, in a splendid example of "reaching across the aisle," feckless Republican Slade Gorton of Washington did all he could to exonerate Gorelick in the commission. Thanks, Slade. God forbid the nation actually knows the truth.


But for Ms. Gorelick, one earth shaking catastrophe is just not enough. You might think that she caused enough carnage to us infidels on 9-11 as to qualify her for the 72 virgins upon her death. (this would also keep her consistent with several of Clinton's philosophies).


Alas, that's only part of her resume. Her fingerprints are all over the Fannie Mae-Freddie Mac mess, which is to say the mess that is central in the entire mortgage-housing crisis. Without so much as one scintilla of real estate or finance experience, she was appointed as Vice Chairman of Fannie Mae in 1997 and served in that role through 2003, which is when most of the systemic cancers that came home to roost today happened. She was instrumental in covering up problems with Fannie Mae while employed there and took multiple millions in bonuses as she helped construct this house of cards.


From Wikipedia:


One example of falsified financial transactions that helped the company meet earnings targets for 1998, a "manipulation" that triggered multimillion-dollar bonuses for top executives.  On March 25, 2002, Business Week  Gorelick is quoted as saying, "We believe we are managed safely. Fannie Mae is among the handful of top-quality institutions." One year later, Government Regulators "accused Fannie Mae of improper accounting to the tune of $9 billion in unrecorded losses"


As we know, the financial damage done by the housing related problems in this country are still incalculable. Ms. Gorelick's evil tab is still growing.


But it doesn't stop there. She managed to be on the wrong side of the Duke LaCrosse case, working for Duke University to protect that school from it's damaging knee jerk reactions to the spectacularly unbelievable charges filed by a stripper. (excuse me, exotic dancer). So, even on a smaller scale, she continues to make money while working to ruin the lives of innocent Americans in defense of liberal dogma. At the Department of Defense, when she served as legal counsel there in 1993, she drafted the "Don't ask /don't tell" policy.


From what can be gleaned, it all comes from being well connected. She was educated (is that what they call it?) at Harvard undergrad and Harvard Law. From there, she kept getting appointed to positions above her experience level where she could flex her liberal muscles, add a resume item, and move upward.

Sound familiar? 

Page Printed from: at November 17, 2009 - 08:12:18 AM EST

American Spectator: Financial Collapse Democrats


Financial Collapse Democrats


When Sen. Barack Obama held a meeting with his economic advisory team, an early draft of attendees approved by the campaign included Jim Johnson, the former CEO of Fannie Mae and a close friend and adviser to Obama. Johnson's name was removed from the list made available to the media, and it is not known if he did in fact call in.


Johnson's name was removed by one of the newer members of the Obama economic team, Jason Furman, who is coordinating economic policy between the campaign and its outside advisers.


Furman was put in place by the campaign's chairman, Penny Pritzker, who also recruited almost the entire Obama economic team, which includes Johnson, former Fed Chairman Paul Volcker, former Treasury Secretary Robert Rubin and former Clinton economic adviser Gene Sperling.

"That Obama would even have Johnson within a mile of his campaign right now is just mind-boggling," says a Democrat political operative informed of the gaffe. "But he prizes loyalty over almost anything else, so it's also not surprising."



Sen. Chris Dodd and Rep. Barney Frank spent much of late Friday and the weekend talking to their friends and donors in the banking, investment, and insurance businesses, seeking advice on how to handle the Bush Administration's economic sector bailout proposal.


Dodd, specifically, according to Democrat Banking Committee staffers, was seeking which financial institutions stood to gain the most from the plan hatched by Treasury Secretary Hank Paulson.


"If this is nothing more than a play that helps Goldman Sachs, it's not going to go over well with Dodd," says a Banking Committee staffer. "Look, it's in our interest to be responsible and keep our financial sector shored up, but politically, we know we're not the ones who are going to take the hit if things get bogged down here in the Senate. We know this can be a wedge issue for us politically if we allow it to be."


That attitude was reflected in the lukewarm-to-neutral statements put out late Friday by Democrat leaders in the House and the Senate. Both Dodd and Frank have been taking political hits for what is perceived by many to be their overly cozy relationship with some of the bad players in this economic collapse, including Fannie Mae, Freddie Mac, and Countrywide Financial, among others.


And Frank's and Dodd's reticence to come out front late last week was reflective of their uncertainty of how to approach working with the Administration. "They were talking to a lot of people they have been dealing with over the past couple of years," says another Senate Banking aide. "They weren't just asking us, they were talking to the people who have been politically and financially supporting them."



The Obama campaign intends to put Sen. John McCain's campaign manager, Rick Davis, in the political crosshairs over the next weeks or so, with TV and radio advertising targeting the longtime McCain adviser.


"It's all about painting him as one of the root causes of the oil and economic crisis in this country," says an Obama media adviser. "This is a guy who was on the housing payroll and the oil payroll, and he was doing it while advising that presidential campaign."


Frontline Blames Clinton Economic Team for the Wall Street Collapse

Oct 23, 2009 ... That's what the subprime mortgage crisis is all about. ... Act under Carter, it was put on steroids in the late nineties with Clinton and ... - Cached




Thank The Democrats For Current Banking Crisis

Saturday, September 27th, 2008


The current banking crisis was caused by the incredible number of home owners who defaulted on their mortgages in the past couple of years. Why did so many people fail to pay their mortgage? That’s easy — they couldn’t afford to make the payments. Why not? Because, for the most part, they couldn’t afford the mortgage they received from the bank.


If they couldn’t afford the mortgage to begin with, why did the bank give it to them? Because, under a Jimmy Carter administration law called the Community Reinvestment Act (CRA), to which huge changes were made by the Clinton Administration and passed by the Democrats in Congress, all financial lending institutions were required to make loans to minority applicants without regard to their ability to make the payments required by the loan. In fact, if the lending institutions didn’t make these loans, they faced huge financial penalties from the government.


Democrats had been looking at mortgage statistics and found that minority applicants did not receive mortgages at the same rate that non-minority applicants did. Being Democrats, they cried, “racism!” and quickly drafted the CRA. It never occurred to the Democrats that the reason that these minority applicants were turned down was because their credit was bad; they simply decided that it had to be racism because everyone knows that the only reason banks don’t loan money to minorities is because they are keeping them down. So, the CRA instituted quotas for the lenders to meet, and the rest is history.


Republicans saw this coming, and tried to get a new regulatory agency created to oversee the loan process and stop these bad financial practices, but the Democrats claimed that there were no problems with Fannie Mae and Freddie Mac and prevented anything from changing.


Watch this video for a real good expanation of what happened:


Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis


The head of Fannie Mae/Freddie Mac during all of this was a man named Frank Raines. This is the man Senator Obama named as his Economic Adviser for his Presidential Campaign. What kind of economic advice do you think he would give to Obama if he is elected? Do you think it would be any different than what he did at Fannie Mae/Freddie Mac? What does this tell you about Obama’s ability to make sound judgments when it comes to the nation’s economy? It tells me this:


His head is up his ass




YouTube - Barney Frank Created the Housing Bubble

Apr 25, 2009 ... It was the DEMOCRATS ALL THE WAY.Listen to this. ... Look up the Community Reinvestment Act (CRA), created under Carter in 1977, which directly pressured savings and loans to ... It was given additional teeth in 1995 under Clinton, ... Frank was responsible for the sub-prime mortgage crisis during a ... - Cached