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We are bailing out banks and other financial institutions by giving them almost one trillion dollars of our children's future. Why do we have to mortgage our children's future for the future of banking dummies that loaned borrowing dummies money that the borrowing dummies could not afford?
Democrats blame Wall Street, greed, Bush and, of course, Republicans. The fact of the matter is that Congress and government regulation is to blame.
This whole mess started with the creation of Fannie Mae (1938) and the Commun-ity Reinvestment Act (1977).
Fannie Mae was founded to provide liquidity to the mortgage market. Since then and solely because of Congress, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States. In 1968, Congress converted Fannie Mae into a private corporation in order to remove the activity of Fannie Mae from the annual balance sheet of the federal budget. Even though Fannie Mae (and later Freddie Mac) was privatized, the government still insured them.
Later, despite massive opposition from the mainstream banking community, the Community Reinvestment Act (CRA) was passed as a result of national pressure for affordable housing to low- and middle- income folks. The CRA mandates that each banking insti- tution be evaluated to determine if they had lent enough money to under-qualified homebuyers.
In 1995, President Bill Clinton ordered new regulations, which substantially increased the number of loans given to people who would otherwise not be qualified to borrow.
In order for banks to be CRA compliant, they set up CRA departments from which to loan money to under-qualified people. These regulated banks were loaning money like crazy, because they were forced by federal regulations to do so or they would be penalized.
Eventually, Fannie Mae began buying sub-prime securities from other banks not sub- ject to the CRA so that Fannie Mae could comply with the CRA.
By 2007, Fannie Mae and Freddie Mac owned or guaranteed almost $12 trillion of the U.S. mortgage market while they implicitly knew all along that if the loans tanked, they would be guaranteed by Con-gress and the Federal Reserve. Basically, Fannie Mae and Freddie Mac took tremendous risks, knowing that the government would bail then out.
Incidentally in 2002, one of the presidential candidates brought a bill to the floor of the Senate which would have restricted Fannie Mae and Freddie Mac, but it was defeated on partisan lines.
These two acts of Con-gress were a recipe for destruc- tion.
Finally, when these people who normally would not qualify for loans defaulted, the bubble burst. There was no money coming in and Fannie Mae and Freddie Mac failed.
Some people say that many of the loans that failed were not regulated by the CRA, so the government did not cause this problem. This view fails to account for the fact that some banks were buying these non-CRA loans from unregulated banks so that they could be CRA compliant. So claiming that most sub-prime loans weren't made by banks subject to the CRA enforcement omits that to meet CRA requirements, such banks were buying those sub-prime notes from exempt mortgage originators.
Imagine that I tell you to go to Reno with your 401(k) in cash. I tell you that you have to bet on baseball and football games with your retirement money.
Further, I force you to not only bet on the Yankees and the Patriots (perennial winners), but you also have to bet on the Royals and the Raiders, too (perennial losers, sorry to you, Raiders fans). Don't worry though, because if you win, you can keep it.
If you lose, I will dig you out of the hole. What do you have to lose?
When you get down to brass tacks, Congress over-regulated the banks. When gov- ernment forces business to do things that they would normally not do, we all lose eventually. Sure, Fannie Mae and the CRA were well-intentioned. Congress wanted low-income folks to get into houses quickly, but at what cost? My children's future? My 401(k)? The path to hell is paved with good intentions.
For this very reason, we need to be very careful who we elect to Congress and the presidency. We need congressmen and a president with proven records of limited government and reliability to adhere to those principles.
I would suggest John McCain and Tom McClintock as people who will protect our families' financial future, but I assume that the readers of The Union are sophisticated enough to determine that for themselves.
The point is that over- regulation (not under-regulation) of the financial institu- tions caused this mess.
Now, we have the very people that caused the problem trying to fix it. Congress is trying to play hero by fixing a problem they caused, while at the same time, misleading us as to the root cause.
If we can get Washington out of our lives, we will all be far better off in the long run.
Barry W. Pruett lives in Grass Valley.
Democrats blame Wall Street, greed, Bush and, of course, Republicans. The fact of the matter is that Congress and government regulation is to blame.
This whole mess started with the creation of Fannie Mae (1938) and the Commun-ity Reinvestment Act (1977).
Fannie Mae was founded to provide liquidity to the mortgage market. Since then and solely because of Congress, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States. In 1968, Congress converted Fannie Mae into a private corporation in order to remove the activity of Fannie Mae from the annual balance sheet of the federal budget. Even though Fannie Mae (and later Freddie Mac) was privatized, the government still insured them.
Later, despite massive opposition from the mainstream banking community, the Community Reinvestment Act (CRA) was passed as a result of national pressure for affordable housing to low- and middle- income folks. The CRA mandates that each banking insti- tution be evaluated to determine if they had lent enough money to under-qualified homebuyers.
In 1995, President Bill Clinton ordered new regulations, which substantially increased the number of loans given to people who would otherwise not be qualified to borrow.
In order for banks to be CRA compliant, they set up CRA departments from which to loan money to under-qualified people. These regulated banks were loaning money like crazy, because they were forced by federal regulations to do so or they would be penalized.
Eventually, Fannie Mae began buying sub-prime securities from other banks not sub- ject to the CRA so that Fannie Mae could comply with the CRA.
By 2007, Fannie Mae and Freddie Mac owned or guaranteed almost $12 trillion of the U.S. mortgage market while they implicitly knew all along that if the loans tanked, they would be guaranteed by Con-gress and the Federal Reserve. Basically, Fannie Mae and Freddie Mac took tremendous risks, knowing that the government would bail then out.
Incidentally in 2002, one of the presidential candidates brought a bill to the floor of the Senate which would have restricted Fannie Mae and Freddie Mac, but it was defeated on partisan lines.
These two acts of Con-gress were a recipe for destruc- tion.
Finally, when these people who normally would not qualify for loans defaulted, the bubble burst. There was no money coming in and Fannie Mae and Freddie Mac failed.
Some people say that many of the loans that failed were not regulated by the CRA, so the government did not cause this problem. This view fails to account for the fact that some banks were buying these non-CRA loans from unregulated banks so that they could be CRA compliant. So claiming that most sub-prime loans weren't made by banks subject to the CRA enforcement omits that to meet CRA requirements, such banks were buying those sub-prime notes from exempt mortgage originators.
Imagine that I tell you to go to Reno with your 401(k) in cash. I tell you that you have to bet on baseball and football games with your retirement money.
Further, I force you to not only bet on the Yankees and the Patriots (perennial winners), but you also have to bet on the Royals and the Raiders, too (perennial losers, sorry to you, Raiders fans). Don't worry though, because if you win, you can keep it.
If you lose, I will dig you out of the hole. What do you have to lose?
When you get down to brass tacks, Congress over-regulated the banks. When gov- ernment forces business to do things that they would normally not do, we all lose eventually. Sure, Fannie Mae and the CRA were well-intentioned. Congress wanted low-income folks to get into houses quickly, but at what cost? My children's future? My 401(k)? The path to hell is paved with good intentions.
For this very reason, we need to be very careful who we elect to Congress and the presidency. We need congressmen and a president with proven records of limited government and reliability to adhere to those principles.
I would suggest John McCain and Tom McClintock as people who will protect our families' financial future, but I assume that the readers of The Union are sophisticated enough to determine that for themselves.
The point is that over- regulation (not under-regulation) of the financial institu- tions caused this mess.
Now, we have the very people that caused the problem trying to fix it. Congress is trying to play hero by fixing a problem they caused, while at the same time, misleading us as to the root cause.
If we can get Washington out of our lives, we will all be far better off in the long run.
Barry W. Pruett lives in Grass Valley.
