Wintery Knight

…integrating Christian faith and knowledge in the public square

After causing the first recession, Democrats plant seeds of the next recession

From the Competitive Enterprise Institute. (links removed, please see original article for links)

Excerpt:

The Wall Street Journal today writes about how the Obama administration is repeating the “mistakes of the past by intimidating banks into lending to minority borrowers at below-market rates in the name of combating discrimination.” Assistant Attorney General for Civil Rights Thomas Perez has argued that bankers who don’t make as many loans to blacks as whites (because they make lending decisions based on traditional lending criteria like credit scores, which tend to be higher among white applicants than black applicants) are engaged in a “form of discrimination and bigotry” as serious as “cross-burning.” Perez has compared bankers to “Klansmen,” and extracted settlements from banks “setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit,” treating welfare “as valid income in mortgage applications” and providing “favorable interest rates and down-payment assistance for minority borrowers with weak credit,” notes Investors Business Daily.

Under Perez’s “disparate impact” theory, banks are guilty of racial discrimination even if they harbor no discriminatory intent, and use facially-neutral lending criteria, as long as these criteria weed out more black than white applicants. The Supreme Court has blessed a more limited version of this theory in the workplace, but has rejected this “disparate impact” theory in most other contexts, such as discrimination claims brought under the Constitution’s equal protection clause; discrimination claims alleging racial discrimination in the making of contracts; and discrimination claims brought under Title VI, the civil-rights statute governing racial discrimination in education and federally-funded programs. Despite court rulings casting doubt on this “disparate impact” theory outside the workplace, the Obama administration has paid liberal trial lawyers countless millions of dollars to settle baseless “disparate impact” lawsuits brought against government agencies by minority plaintiffs, even after federal judges have expressed skepticism about those very lawsuits, suggesting that they were meritless.

Fearing bad publicity from being accused of “racism”, banks have paid out millions in settlements after being sued by the Justice Department, even though they would probably prevail before most judges if they aggressively fought such charges (although doing so would probably cost them millions in legal fees).  A Michigan judge called one proposed settlement “extortion.” These settlements provide cash for “politically favored ‘community groups ” allied with the Obama Administration, and the Journal’s Mary Kissel predicts that “many” of the loans mandated by these settlements “will eventually go bad.”

This is exactly what caused the first recession.

Who caused the first recession?

Here’s a summary of how we got into the first recession – it was caused by the Democrats, and the Republicans tried to stop them.

First, watch this video of Barney Frank obstructing regulators and defending Fannie Mae and Freddie Mac. (H/T Verum Serum)

Now look at this Boston Globe article.

Excerpt:

When US Representative Barney Frank spoke in a packed hearing room on Capitol Hill seven years ago, he did not imagine that his words would eventually haunt a reelection bid.

The issue that day in 2003 was whether mortgage backers Fannie Mae and Freddie Mac were fiscally strong. Frank declared with his trademark confidence that they were, accusing critics and regulators of exaggerating threats to Fannie’s and Freddie’s financial integrity. And, the Massachusetts Democrat maintained, “even if there were problems, the federal government doesn’t bail them out.’’

Now, it’s clear he was wrong on both points — and that his words have become a political liability as he fights a determined challenger to win a 16th term representing the Fourth Congressional District. Fannie and Freddie collapsed in 2008, forcing the federal government to buy $150 billion worth of stock in the enterprises and $1.36 trillion worth of mortgage-backed securities.

Frank, in his most detailed explanation to date about his actions, said in an interview he missed the warning signs because he was wearing ideological blinders. He said he had worried that Republican lawmakers and the Bush administration were going after Fannie and Freddie for their own ideological reasons and would curtail the lenders’ mission of providing affordable housing.

“I was late in seeing it, no question,’’ Frank said about the lenders’ descent into insolvency.

This is not in doubt – this is a known fact. Democrats caused the recession by meddling in the free market.

Democrats caused the recession and Republicans tried to stop them

Here is Barney Frank in 2005 claiming that fears of a housing bubble are unfounded.

Here’s the timeline showing who wanted to regulate Fannie and Freddie, and who blocked their attempts.

Here’s video from a hearing showing Democrats opposing regulations:

That’s right – Republicans wanted to regulate Fannie Mae and Freddie Mac, and Democrats said Fannie Mae and Freddie Mac are “doing a tremendous job”.

Fannie Mae and Freddie Mac had paid the Democrats off handsomely during multiple election cycles, but I’m sure that the Democrats’ opposition to regulations had nothing to do with those political contributions.

The only ones to try and stop the Democrats were George W. Bush in 2003 and John McCain in 2005. Both attempts were blocked by Democrats.

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16 Responses

  1. jerry says:

    Your thesis is that fannie and freddie were the cause of the 2008 crash ignores every piece of evidence out there. You do not call out the other larger subprimer mortgage lenders, you do not call out the banks that created the CDO’s or the other derivatives. You do not call out how it was republicans that wildly opposed regulating what was in 2000 a 50+ trillion dollar unregulated derivatives market because Alan Greenspan wildly opposed it along with many other in the GOP while the likes of Frank and Dodd wanted to. You don’t call out the signers and supporters of the Graham-Leach-Bliley act – you simply call out two federal entities that bought the garbage sold by wall-street under the protection of the GOP and Bill Clinton (as he did sign the legislation that repealed the Glass-Steagal act and at the behest of Greenspan and the GOP took the teeth out the FTFC that was then headed by Brooks lee Bourne). My thoughts on who is responsible – http://www.yourbeliefsarewrong.com/2011/08/behind-the-2008-meltdown-who-was-responsible/

    I believe this is just another assault on scapegoats while ignore what the true problem is. Do I believe we should have different lending standards for Blacks and whites as Obama’s people are pushing for – no. Even if credit scores aren’t perfect, they’ve done good so far. But to blame the crisis on two banks ignores everything that went on with the whole fiasco

  2. Mariangela says:

    Jerry, you seem bent on blaming the Bush administration for a problem that was started well before the Bush administration and I’m not sure why you always want to comment on this topic when you seem to refuse to do your homework. Please avail yourself the information available online and in Wintery Knight’s previous posts so that you can argue intelligently. The Problem began with the CRA, the Community Re-investment Act. This Act was pushed by Social Justice goody-two shoes in the democratic party and came to fruition in a meaningful way during the Clinton administration. According to the L.A. times article http://articles.latimes.com/1999/may/31/news/mn-42807 “All of this suggests that Clinton’s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate.”
    And as for them being scapegoats, Wintery Knight is more than correct in placing blame on them. The L.A. Times states in the same article, “In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.” They may have acted under democrat extortion ism, but they did act and we are still suffering the repercussions.

    • Thanks, M. But I don’t think he can be convinced by facts and arguments.

      I concede his point about the derivatives, though.

      A very good book on this is “The Housing Boom and Bust” by Thomas Sowell. There is a second edition out now.

    • jerry says:

      I often question if you even read what I wrote – where did I even mention Bush – Jr or Sr? I mentioned Greenspan (first hired by Reagan and kept on by every president until he retired). I also mentioned Bill Clinton as the person that signed the bills that lifted the restrictions that allowed the banks to take the risks that caused this problem.

      So please, if you’re not going to be courteous enough to even read what I write, don’t outright lie about. I NEVER mentioned Bush, not once.

      As for the CRA, you have to prove how an act that pushed for more minority loans forced banks to make liar loans (allowing people to claim they make 100K a year while actually making much less), to lend to people with credit scores that were sub-600. To blame that act is one of the most ridiculous leaps one can take. It ignores the collateralized debt obligations and other fancy derivatives that wall-street developed to bundle all of these loans in to investments while paying the $500K review fees to the likes of standard and poors, fitch’s, & moody to get a AAA rating so that they could be easily sold as safe, 401k investment grade material. Once these were created, all impetus to verify loan applications and credit worthiness went out the window since banks were allowed to make the loans and quickly sell them off to get bundled – it’s the reason you saw signs all over the place gauranteeing loans and no one turned away. CRA had nothing to do with it, it was all wall street. here is a great site with a very nice graphic: http://www.ritholtz.com/blog/2010/07/global-housing-boom/ If the CRA caused the housing boom and bust in the US, then what caused it all over the rest of the world? You’ve provided no credible proof that CRA had any involvement.

      • You keep mentioning Wall Street as if they are Republicans. They’re not. They gave money to Obama.

        http://winteryknight.wordpress.com/2010/04/20/wall-street-bankers-gave-obama-millions-in-campaign-contributions/

        • Jerry says:

          I don’t think I mentioned them (Wallstreet) as if they were GOP – I did call out a couple that were GOP (or at least worked for Bush Jr – Greenspan (though he also worked for Clinton), Paulson, John Snow, Paul Oneill, etc). I’ve reiterated in many of your posts that I don’t blame the GOP, I just don’t buy your simple explanation. The CRA had no enforcement teeth, section 208b still required that the underwriting standards had to be high, they just couldn’t as Mariangela put it redline areas – you have yet to show any proof that the CRA said “give loans to people without jobs or with very low paying jobs” because there is no proof. Greed and lack of oversight is what caused this mess and that crossed all political boundaries.

    • I read about the impending meltdown three years before it happened, in Forbes (my employer). It called out the very players you like to ignore, M: banks, derivatives, mortgage lenders.

      Information available online implicates the same culprits today. This is an endemic problem that cuts across red and blue lines. WK has tried to make it a partisan issue. It is not.

      • Except that it is. The banks and GSEs are on record as giving to both parties to avoid regulation, but PRIMARILY to Democrats. You can see the donations to Dodd, Obama, Frank, etc. at opensecrets.org. People think that when you say bankers and Wall Street, that means Republicans. But I showed that it means Democrats more than Republicans, and that the heads of FM and FM are Democrats trying to stop the Republicans from regulating them. I find the comments here frustrating. Can you people not see what is going on in the videos, and in the 2003 and 2005 attempts by Bush and McCain to regulate these Democrat-run organizations that are trying to force and enable banks to make these loans to people who cannot pay them back? That is the point of the post.

        If we are listing causes of the recession, I would list these, which I got from Thomas Sowell’s book “The Housing Boom and Bust”

        1) low interest rates (Greenspan/Bernancke)
        2) HUD (Democrat and some Republican)
        3) derivatives (Democrat and some Republican bankers on Wall Street)
        4) CRA (Democrats)
        5) Fannie and Freddie (Democrats like Frank and Dodd, some Republicans like Bob Bennett)

        And the good guys are Bush and McCain, who attempted to regulate Fannie and Freddie but were blocked by Democrats as seen in the videos. I am not sure why people are not replying to the stuff that is in the post. I admit to the interest rates and derivatives, but none of that would be possible with these private-public hybrids (Fannie and Freddie) there to guarantee these risky loans made by the banks. The profit motive would not allow a person to make these loans if the banks were on the hooks for them – they need Fannie and Freddie, which are implicitly backed by the government, to cover the risk. And we haven’t even talked about the housing regulations that caused home prices to skyrocket in just a few Democrat-dominated cities. This is all in the Sowell book. That’s what caused the housing price bubble – a shortage of home construction caused by regulation of new construction.

        Here:
        http://winteryknight.wordpress.com/2011/02/21/thomas-sowell-on-the-root-causes-of-the-mortgage-lending-crisis/

        Yes, low interest rates are bad. But making banks make loans to poor people causes recessions. And that’s what Obama wants to do.

  3. Mariangela says:

    I think the link Jerry posted with his comment is the most bizarre one I’ve seen to date. Really? You’re going to blame Ronald Reagan for the 2008 financial meltdown? The reasoning is that there wasn’t enough government intervention to stop a meltdown, when it was obviously government intervention that caused the meltdown. Does one really have to tolerate this kind of faulty logic?

    • Sigh. It’s good that we have you to correct him.

    • I agree that the low interest rates and the derivatives were factors. Now did you watch the videos with Barney Frank, Franklin Raines and the Republicans trying to stop them by regulating and auditing Fannie Mae and Freddie Mac? Because you need to know who was trying to regulate and who wasn’t.

      • jerry says:

        I did watch it, but how would regulating F&F have stopped this? They were simply consumers of the exotic instruments that wall street was selling (I’ve updated my post) – they same as Stanley morgan, country wide, AIG (all of whom were bigger than F&F in terms of toxic investments), MBIA, AMBAC, and the countless hedge funds that don’t have to report these investments as they’re unregulated and the 401k and municipal investors that bought the toxic derivatives that were rated AAA.

        So you’re really putting out a red herring argument – a classic example. Had F&F not invested in these toxic instruments, it would have meant there would have been more for the others to scoop up – it was a competitive market where everyone was trying to buy these up.

        so no, we could have done away with F&F and this still would have happened. Would regulating them be good – of course, as you’re stating, regulation is good, but we can’t limit the regulation to them – they are after all, private, for profit companies with public mandates.

    • Jerry, can you please tell me your thoughts on this:
      http://ht.ly/6jLtE

      • jerry says:

        I think it’s a great argument against career politicians, but I think you missed a key part of the article:
        Raines begged mortgage bankers for more subprime loan

        “begged” – she didn’t force them to do anything, as one (or how ever many are in the black caucaus) politician of 538 in a divided house (both politically: dem vs red and legally, congress vs senate) has little sway in these matters.

        • Franklin Raines is male and is an outspoken Democrat. So is Tim Johnson. And I pointed out the party affiliation of the bankers. who got Obama elected. Democrats.

  4. [...] is no other way to answer this question – it is a simple, cut and dry answer. So why does the right love to put this out as the reason for the crash? It has all the aspects the ideologically right would love – it moves the blame from wall [...]

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