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:
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:
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September 28th, 2008 at 12:59 am
This is the man Senator Obama named as his Economic Adviser for his Presidential Campaign.
Wrong!
Franklin Raines WAS NOT and IS NOT part of the Obama campaign and was certainly never asked to be his “economic advisor”.
But Rick Davis, who was paid almost $2 million to lobby for Fannie Mae and Freddy Mac isn’t just an advisor to John McCain, he is HIS CAMPAIGN MANAGER!!!!!
In fact, more than a dozen members of McCain’s campaign staff were paid lobbyists for Fannie Mae at one time or another.
Also, there are many reasons for the subprime mortgage crisis.
Trying to blame it on a Carter era initiative to promote affordable housing has already been thoroughly debunked.
September 28th, 2008 at 9:20 am
Good grief, Nick. You can follow the link to the study and read it yourself, but the relevant information is thus:
Shorter Response: A study of CRA loans shows:
* CRA loans constituted only 23% of all loans and 9.2% of high-cost loans.
* CRA loans were twice as likely to be retained in the originating bank’s portfolio than loans made by other institutions.
* CRA loans were less likely to be foreclosed upon than other loans.
Nice try to pin this one on the Democrats, but anyone with the IQ above that of a houseplant ain’t buying it.
September 28th, 2008 at 5:30 pm
Guys, according to the article you cited above: By Raines’s own account, he took a couple of calls from someone on the Obama campaign, and he or she had general discussions about economic issues. I have asked both Raines and the Obama people for more details on these calls. Does this make him an adviser to the campaign? Probably not, but the fact remains that the Obama campaign, and by extension Obama himself, thought enough of Raines to ask him about these matters, and this was after he forced to leave Fannie Mae/Freddie Mac due to his poor financial management.
Mike, far from debunking anything, the article you cite was written by and for liberals looking for a way to make the CRA look good. It is a source with a severe bias and a flawed premise: that evil corporations wanted to make money, so it was their fault. The fact is, every single lending institution out there is trying to make money with their business. Contrary to popular liberal belief, businesses do not exist to provide services to people free of charge so that everyone gets to have the same quality of life.
Common sense tells you that if too many people cannot afford to pay their mortgage, the banks holding those mortgages are going to loose huge amounts of money and quite possibly fail. Because the CRA forced lenders to make sub-prime loans to people based on criteria other than credit worthiness, it doesn’t take a genius to see that a majority of these loans are probably going to default.
The changes to the CRA made by the Clinton Administration were nothing more than social engineering; giving mortgages to people who couldn’t afford them just because “they deserve the chance to live in a home.” It was just affirmative action applied to the lending industry. Now, banks are failing and these mortgages given to people who can’t afford them are in foreclosure. For years, the Democrats in Congress not only failed to act, they prevented others from acting to correct the problem.
All in all, yeah, the Democrats are to blame for creating this mess, and then preventing anyone from fixing it before it got as bad as it is now.
September 29th, 2008 at 10:59 am
C’mon, Nick, admit that you were misinformed about Raines’ connection with the Obama campaign and give it up. You can’t honestly argue that because someone with the Obama campaign called Raines once to talk about economic issues that somehow makes him an official advisor to the campaign. That is utterly ridiculous.
Here is what most likely happened: Someone in the Obama campaign was assigned the task of finding out all they could about the situation with Fannie Mae and Freddie Mac and what went wrong with them. They then called up Raines, the former CEO, and said “What happened?”, as part of their research. They would have been dumb not to have talked to him.
Secondly, I did a Google search and came up with dozens of sources all saying the same thing about the CRA and how it played only a small role in the current fiasco. I picked one and linked it. Your knee-jerk response is to claim that any source that disagrees with or disproves one of your beliefs is biased and wrong. We can’t have a legitimate discussion this way. If you have a credible source that counters what my source is saying then let’s see it. Don’t just put your fingers in your ears and scream “Liberal! Liberal! Liberal!”
If we had had the proper regulations and oversight in place, the bad loans left over from the housing boom would never have metastasized into the enormous tumor that is now strangling our entire financial system. And that, is very much the Republicans’ fault. Their brilliant idea that deregulation and unfettered markets will lead to an era of economic bliss has once again been proven to be disasterously wrong.