"The Financial Crisis Doesn’t Affect Me" (and Other Miscalculations)
No matter who you are, the current credit crunch does affect you, even if you don’t have a penny in the bank or a stock. Never mind (for now) the domino effect of the credit market seizing up, if you vote, it should affect you.
Item 1: Rep. Barney Frank has called this current crisis two things that are both flat-out lies; a failure of the free market and the result of Bush administration policies. Frank should, and likely does, know better, since he’s the chair of the House Committee on Financial Services. There has been video all over the blogosphere, and linked here as well, that show he and his fellow Democrats denying any problems at all with Fannie Mae and Freddy Mac, and now he’s trying to solely blame Republicans. There’s plenty of blame to go around in both parties, but he’s in a unique position, as committee chair, to pronounce the truth of the matter to us. Instead, he’s politicizing this huge issue for partisan gain. If you’re from Massachusetts and you vote, this should affect your vote.
Item 1a: Senator Joe Biden said the same thing about it being all about Bush administration policies. This should affect your vote.
Item 2: At the foundation of this crisis is an abandonment of free market principles, not the failure of them. Republicans have (more often) been the keepers of the free market flame. (That’s not been a constant by any means, but a good generality.) The Community Reinvestment Act is a Carter-era program to basically force lenders to give home loans to those who would otherwise not qualify, and the default rate of these loans is higher than normal. That, along with the Gramm-Leach-Billey act which allowed Fannie Mae and Freddie Mac to write or buy up these loans in a bigger way, released other banks from this higher-risk paper and continued us down the primrose path. Again, videos highlighted here showed, one of Obama economic advisors Franklin Raines, who at the time of the video was CEO of Fannie Mae, insisted that home prices would always go up. Now, there is no doubt in my mind that Wall St. greed fueled this as well, but with a government mandate to write high-risk loans, and a (for all intents and purposes) government agency ready and willing to buy them up, this was a recipe for disaster.
The point is, as honorable and as high-minded the intentions were to try to get more people into their own homes, it set more people up for failure. You can say that the number of foreclosures wasn’t enough to be a problem, yet here we are, the engine of commerce about to seize up over securities backed by mortgages. This started when Democrats decided that the free market wasn’t working and instituted policies to, in their eyes, fix things. While it did get many into homes that might not have otherwise been able to, does it really help us in the long run when Congress has to eventually bail us out to try to avoid a recession or worse? (And the jury’s still out on if the bailout will really do it, or if it’s just a short-term band-aid.)
Those who think that the free market failed us then, and are now ironically blaming the free market again, are running for President in November. This should affect your vote.
It does affect you. Or it should.
Filed under: Democrats • Doug • Economics & Taxes • Government • Politics
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The Community Reinvestment Act is a Carter-era program to basically force lenders to give home loans to those who would otherwise not qualify
A clarification: The CRA is a program to end the illegal discrimination of folk, denying loans to folk depending upon what neighborhood they live in.
As I understand it, there is nothing in the Act that requires banks to loan to bad risks. It was designed to ensure that businesses and individuals in poorer (often minority) neighborhoods who qualified for loans had access to them.
It is about justice and, as such, a good thing.
The CRA, while ostensibly about discrimination, also relaxed or removed regulations on those loans that were labeled “outdated”, like credit history, down payment amount, and sources of income. Additional risk was built in to the requirement. Banks were threatened with punishment if they didn’t comply or write enough CRA loans. (Source)
So yes, they qualified for loans, but after the CRA changed the rules. Many would have anyway, indeed, but those that wouldn’t have were also included, increasing the risk and, subsequently, the default rate. It made the CRA look better than it really was, inflated demand for houses, we get a housing bubble, it pops, and now here we are.
“Recession in the name of justice.” Sorry, that slogan doesn’t work for me.
Just like Republicans to blame it on minorities. Republicans controlled Congress for 12 years and the White House for 8. Deal with that before you drag out some act from the 70s.
C’mon Stan. If you go back and read the post again, I’m blaming government, not the minorities. In the sense that believing a big-government solution would be the fix we need, I’d also point the finger at anyone who buys into that.
“There’s plenty of blame to go around in both parties….” That’s from the post, too. So it shouldn’t be a surprise (though it may be) that I agree with you on that count.
But the main thrust of the post is how we should go forward, and what lessons we should learn, and, in learning them, how it should affect us and our vote. If we fail to learn the lessons, we deserve what we get.
Here’s another analysis of how the CRA was a major contributor to the “free lunch” mentality; more homeowners with no affect to the federal budget. You will find blame placed on Clinton and Bush alike, but mostly on a political class that wants to fix things with other people’s money.
To coin a phrase; the road to recession is paved with good intentions and other people’s money. (Got to work on that. Not snappy enough.)
Both parties are to blame for the mess
we’re in. They’re in the pockets of the corporatocracy. The loans issued under the CRA are a drop in the bucket compared with mortgage backed securities that are now worthless. This is another attempt at the “Big Lie”. Don’t be fooled by this. The bad guys are winning. They’ve taken away our democracy. We the people have allowed this to happen by voting in these corporate shills.