What Caused our Economic Crisis

That needs to be seen everywhere. Spread it.

If I were the McCain guys I would use 50% of the
advertising money on spreading this.

It goes pretty fast but I kept pausing and trying to transcribe most of it.  This is pretty much the video for anyone who doesn't want to have to listen to the music while it goes along.

What caused the economic crisis?

All the bad mortgages and bad debt.  The root cause is the housing foreclosure crisis and the housing bubble.  We have had the subprime lender implosion brought on by risky mortgages to low income bad credit borrowers.  These loans flooded the market because of the Community Reinvestment Act.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

Jimmy Carter and the other Democrats passed this and it gave incentives to help low-income borrowers get a home.  A good idea if done right and it helped until 1995.  Then the Clinton Administration made changes in 1995.  It added massive new provisions that forced banks to issue 1 Trillion Dollars in new subprime loans which created subprime mortgage securities.  Bear Stearns was the first to do it and they’re gone.  Fannie Mae added to this when it purchased 2 Billion Dollars of “MyCommunityMortgage” loans for low and moderate income borrowers purchasing 1 to 4 unite homes.  Subprime mortgages started to grow even more.  Then home prices started to rise.  Fannie Mae is a government sponsored enterprise that guarantees mortgages, then Fannie Mae sells them to banks and investors.  The more mortgages the more money Fannie Mae makes.  To increase the number of mortgages the only thing they could do was move down the income ladder with “affordable mortgages” such as variable rate and interest only.  The banks had to issue subprime mortgages or pay big penalties.  But, they had to keep them affordable.  So we ended up with no money, no money down, interest only, low variable rate, no income verification, bad credit, no credit, no problem!  In 2004 92% of Fannie Mae’s subprime loans were made up of variable rate loans.  It was 91% in 2005.  Fannie Mae kept telling the banks they’d guarantee them.  Home ownership kept rising and so did home prices.  Then interest rates rose and gas prices started to rise.  Some borrowers had to stop paying.  This caused banks to tighten up their lending and the subprime market collapsed.  Foreclosures kept increasing and there were few buyers and lots of sellers causing housing prices to drop like a rock.  This caused even more borrowers to stop paying resulting in the Fannie Mae “guarantees” being worthless.  Freddie was also hit by all of this.   Banks collapsed because of worthless government sponsored securities issued by Fannie Mae.  Jobs disappeared and here we are.

Why is the expansion of the Community Reinvestment Act to blame? 

Before CRA expansion in 1995, home prices increased with inflation.  After the expansion home prices became unhinged from inflation and outraced it.  This caused home prices to rise too fast becoming a bubble just waiting to burst.  But, it didn’t have to happen.  Someone tried to stop it.  In 2003 a new agency was proposed by the Bush administration to oversee Freddie Mac and Fannie Mae.  The Bush administration “recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago” according to the New York Times.   This was stopped by Democrats.  The reason they stopped it?  “Efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families.”  Barney Frank (D-MA) said, “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”  Melvin Watt (D-NC) said, “and in the process of weakening the bargaining power of poorer families and their ability to get affordable housing.”  The Time Bomb ticked away.  Someone else tried to stop it in 2005.  John McCain warned of the mortgage collapse in 2005 and he co-sponsored a bill, The Housing Enterprise Regulatory Act of 2005. 

http://www.govtrack.us/congress/bill.xpd?bill=s109-190

This bill would have regulated Fannie Mae and Freddie Mac but the Democrats blocked it.  It came back in 2007 but still no luck because Fannie Mae had friends in the Senate.  Chris Dodd (D-CT) a sweetheart loan recipient.  Obama also protected them and then, surprise, he had Jim Johnson help select his VP.  Jim Johnson the managing director of Lehman Brothers (now bankrupt) from 1985-1990 and CEO of Fannie Mae from 1991-1998 when CRA was expanded.  Jim Johnson who improperly deferred $200 million in expenses.  Fannie Mae under-reported Johnson’s compensation, originally reported as $6-7 million when he had actually received $21 million.  He gave Obama the maximum donation allowed and he’s now a wealthy private banker on the Board of Goldman Sachs which has given another $700,000 to Obama and raised another $500,000 through “bundling”.  Johnson had to quit as Obama’s advisor.

Then there is Franklin Raines, who gave advice on housing to Obama.  Franklin Raines lives in a 7.6 million dollar house.  He served the Carter administration when the CRA was first enacted.  He was Vice Chairman of Fannie Mae from 1991-1996 when the CRA was expanded.  He was the Clinton administration OMB Director from 1996-1998.  He was CEO of Fannie Mae from 1999-2004 and he got a 25 million dollar golden parachute from Fannie Mae along with a sweetheart loan.  He resigned due to accounting irregularities being uncovered in the company.  Obama received more money from Fannie Mae in 3 years than John Kerry had in 20 years.  Obama received 4 times more money from Fannie Mae per year than any other Senator over the last 20 years.  He received 49 times more money than John McCain showing that calling for regulation of Fannie Mae doesn’t pay.

Who worked at a law firm that sued banks for not issue enough subprime loans?  They sued Citibank.  Obama represented Calvin Roberson in a 1994 lawsuit against Citibank, charging the bank systematically denied mortgages to African-American applicants and others from minority neighborhoods.  No one likes discrimination.  Everybody deserves a home, but not a house of cards. 

Poor people did not cause this.  Free markets did not cause this.  Deregulation did not cause this.  A bad government regulation caused this.  It turned Main Street banks into predatory lenders to fulfill a government mandate.  Self-interested lawyers caused this.  Greed and stupidity on Wall Street Caused this.  Obama got his wish with lots of “affordable mortgages” that people couldn’t really afford while his friends got richer and every one else got poorer.  Bad social engineering caused this.  Creating the environment and the wrong incentives that set up low-income families to fail and have their dreams torn away by reality while getting Wall Street to finance it all.  That’s not hope.  That’s not change.  Obama’s heart may be in the right place but his head is not.  His friends caused this.  Nancy Pelosi (D-CA) says the Democrats bear no responsibility for the economic crisis.  What?  Obama’s political philosophy caused this and now he lectures the country about “failed economic policies” and he ridicules John McCain.  This isn’t change, it’s more of the same.  This isn’t hope.  It’s Hope-o-crisy.

Bush strikes me as more air-headed than stupid, almost like he hasn't got a thought in his head at all.

Here is what I think he has up there.

Like a Republican Senate perhaps?

Isn't that what I said by referencing the Contract with America?

I'd choose A, but I don't think the other options are dishonest per se.  Or illegal for that matter.

I hear what you're saying Rich, but isn't part of the problem that people were banking on the inflated sale prices and that the houses that were sold at all time highs would continue to appreciate?  So the problem is that it wasn't just the loan product that was sold (and in some cases misleading) but the "value" that was misleading.  Blaming the problem only on predatory lending alone is too simple an answer.

Warning, link is not for the feignt of heart.

Umm, I was recently exposed to this, and it was very hard to watch. But I felt it needed to be put up for discussion. Came my way by e-mail, I'd never heard of this, even from my conservative friends.

http://www.youtube.com/watch?v=VIdbYjmbFzo