Let’s Kill This Myth Once and for All

The following myth promoted by President Obama must be addressed once and for all: The policies of the last administration led to the crisis I inherited.  I believe he is referring to tax cuts and deregulation.  (I am not sure because no one in the media has asked President Obama to which policies he is referring.)

The fiscal collapse in 2008 was due to the Democrats in Congress and liberal do-gooders.

The liberals believed that everyone should be able to buy a home.  They pushed through the Community Reinvestment Act (CRA) enacted in Congress and signed by President Carter in 1977. The intent of the act was to “encourage depository institutions to help meet the credit needs of the communities in which they operate¹.” 

Through the years mortgage lenders were pressured to offer loans by the regulations in the CRA and by community activists like ACORN who claimed their strict lending practices were discriminatory.

Normally risk-adverse lenders made loans knowing they could sell them to Fannie Mae and Freddie Mac for a profit and pass the risk on.  Fannie Mae and Freddie Mac were chartered by the U.S. Congress as government-sponsored enterprises (GSEs).  These GSEs along with low interest rates increased home ownership but were also responsible for the housing bubble.  Fannie Mae and Freddie Mac made large profits for more than two decades. 

Fannie and Freddie’s rivals on Wall Street didn’t want to be left out in the cold.  They found a way to join the fun through financial innovation, and sub-prime loans took off.  Investors, insurance companies, hedge funds, and other financial entities also wanted to take advantage of the housing boom so they invested in mortgage-backed securities.

As early as 2004 the Office of Federal Housing Enterprise Oversight (OFHEO) warned that Fannie Mae and Freddie Mac were in trouble.  Yet, the Democrat-controlled Congress refused to intervene. In 2007 the GSEs began to experience huge losses.  In 2008 the housing bubble burst causing ripples throughout the country’s financial institutions precipitating the collapse from which we are still trying to recover.

The video linked at the bottom of this post shows Democrats in 2004 prior to the housing market collapse.  Knowing what we know now, they look pretty stupid.  It shows Republicans insisting on more regulation of the government-sponsored enterprises, Fannie and Freddie.  It shows Democrats ripping into the regulator from OFHEO.  Democrats are all for regulation until it regulates anything associated with government.  It also shows Barney Frank’s involvement.  The Democrats recently passed a bill to fix the problem they created.  Many analysts claim this bill has over-regulated banks to the point that has slowed the recovery.  The bill is the Dodd-Frank act.  Yes, the same Frank as in the video (see Killing Mosquitoes, written in 2009 well before Dodd-Frank,  below).  Dodd was involved with causing the problem as well but is not mentioned in the video.

Once this myth is killed we can start on the myth that Republicans want to kill old people, don’t care about kids with autism, and hate Big Bird.

 

1.       http://www.ffiec.gov/cra/default.htm