How Did This Financial Crisis Happen?

Scott, this is a fabulous video! The first half of it is my “perfect storm” post in visuals…. detailing all the components/events it took to create this financial storm.

The second half of this video is about the politics and politicians. I deliberately left out the political players in the “perfect storm” post in order just to get everyone up to speed on the reality, and not point partisan fingers. If I brought politics into it too heavily (tho I knew), the post’s information would have been rejected as partisan, and not factual.

It was the Clinton admin itself (specifically Robert Rubin’s Treasury Dept) who rewrote the compliance rules that caused the explosure of exotic loan packages. This wasn’t even an act of Congress. The DNC control was on the way out, and the GOP Congress on the way in.

Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended.

Addressing the National Association of Realtors that year, Clinton bluntly told the group that “more Americans should own their own homes.” He meant it.

Clinton saw homeownership as a way to open the door for blacks and other minorities to enter the middle class.

Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin’s Treasury Department to rewrite the rules in 1995.

The rewrite, as City Journal noted back in 2000, “made getting a satisfactory CRA rating harder.” Banks were given strict new numerical quotas and measures for the level of “diversity” in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.

Loans started being made on the basis of race, and often little else.

“Bank examiners would use federal home-loan data, broken down by neighborhood, income group and race, to rate banks on performance,” wrote Howard Husock, a scholar at the Manhattan Institute.

But those rules weren’t enough.

Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.

Clinton’s HUD secretary, Andrew Cuomo, “made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis,” the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.

Despite the rewrite and compliance mandates, the higher loan rates between 1997 and 2000 kept the housing prices… tho rising… still somewhat in check. But after 911 and the rate cuts, the influx of buyers multipled like rabbits in spring, and the housing prices shot up out of control. And it is, as this video confirms, housing prices that also is n important component to this “perfect storm” of events.

Conversely, housing prices are also a part of “the cure”… something the lawmakers are not hep to in this legislation. They want to force them to remain unnaturally high. And that’s a huge mistake.

On the politics?

Frankly, yes… the DNC does deserve a bit more of the blame for this whole event. And tho Bush and McCain did attempt to get this under control, they also have to share the blame. After all, they did have a GOP Congress during some of these attempts. And despite a WH, and some leaders like McCain, they couldn’t get a majority.

This means there were all too many GOPers that were on board with the DNC when it came to the homeownership issue, and the loose loan criteria they mandated. Ample blame for both sides of the aisle.

Oddly enough, you can’t blame either Bush or McCain… save for not trying harder. But that’s like blaming the firefighter for the death of a victim because nobody gave him a ladder. In this case Bush/McCain and a few other GOPers are the firefighters, the US citizen is the victim, and the DNC and some GOP Congress are those refusing to provide the ladder.