Roots of the Crisis

FreedomWorks has done an excellent, well-documented analysis of the roots of the current economic crisis. Their analysis begins in 1913 with the passage of the income tax law and the ability to deduct mortgage interest to encourage the assumption of debt by Americans in the purchase of a home, and continues through October of 2008 when the crisis was fully upon us. Anyone interested in how we got here should read this analysis.


1965 – The Department of Housing and Urban Development (HUD) is created.

HUD and FHA insure loans for borrowers with insufficient credit, thereby driving down interest rates for low-income borrowers and artificially increasing the amount of housing produced and sold.

1977 – The Community Reinvestment Act (CRA) becomes law

and requires banks to loan to the areas where the banks are located, regardless of the eligibility of potential borrowers. To enforce the statute, government agencies take the information they gather on the banks into consideration when deciding to approve applications for new bank branches or for mergers or acquisitions.

1992 The Clinton Presidency Begins

Government weakens bank lending standards. A now-discredited study published by the Boston Federal Reserve enables Government Sponsored Enterprises Fannie Mae and Freddie Mac to accept lower underwriting standards for mortgages they are seeking to purchase, so they may expand their portfolios, enable private banks to make more loans and influence the housing sector.78

At the same time, Congress weakens Fannie and Freddie standards. The Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) is passed into law. This act mandates that the GSEs increase their acquisition of bank loans made to risky and lower income borrowers. GSE Fannie Mae announces a trillion dollar commitment. Banks know they can meet CRA requirements by giving these loans, and that they will be able to pass the risk of such loans on to the implicitly taxpayer-backed Government Sponsored Enterprises, so they make lower quality loans.

Also in 1992, Countrywide, Wachovia, and others pushed by Federal Reserve publications and other regulations begin loaning to clients with no or bad credit. Lenders are able to pass on the added risk of these loans by selling them to the GSEs, who guarantee, repackage, and sell them as securities with the implicit backing of the government in the case of default.

2003 Corruption at Fannie and Freddie

In 2003, the Federal Reserve lowers interest rates to 1% – the lowest since the 1960s. The rate allows borrowers to borrow at an interest rate lower than the rate of inflation, effectively subsidizing borrowers, encouraging banks and individuals to borrow as much as possible.

President Bush calls for reforming Fannie Mae and Freddie Mac by increasing their capital-reserve requirements, the percentage of liquid assets lending institutions must keep on hand incase of financial trouble.17 Third-party groups call for the two Government Sponsored Enterprises to be fully privatized, rather than the current status which privatizes profits but socializes risk. Congress, heavily lobbied by Fannie Mae and Freddie Mac to oppose the reform, opposes reform.

Frank: “I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis… . I do not think at this point there is a problem with a threat to the Treasury.
— Rep. Barney Frank (D-Mass.), at a hearing in 2003

Read the whole article.

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Who is to Blame?

Who is to Blame?

Crucial Battle Over Reality

By Bill Wilson

With most people riveted to the battle between John McCain and Barack Obama, little mainstream media attention is being paid to a raging battle that has as much, if not more, potential impact on Americans than the quadrennial fight for the White House. And even more important than today’s vote on the bailout bill that just passed the House 263-171. That battle is over the public perception of how we got into the financial mess we find ourselves. And while facts would seem to be facts, the picture of “reality” that becomes the accepted conventional wisdom is of crucial importance.

The socialists are desperate to not take the well-deserved blame for the debacle. There is a growing realization that if the American people learn the role played by Barney Frank, ACORN, Barack Obama, and the horde of other subsidy-seeking politicians, support for their welfare will dry up. And with it, so too will support for their schemes to soak the American taxpayers.

The truth is well known and is slowly getting reported. Starting with the Community Reinvestment Act and then the 1995 Clinton administration regulations, liberals and their socialist allies pushed banks and other lending institutions to extend loans to people who could not afford them. Fannie Mae and Freddie Mac encouraged and then bullied lenders to extend these loans by all but eliminating any standards to qualify. Even the New York Times in 1999 noted the policy implications. Fannie and Freddie then bought the bad paper, packaged it up and sold it on Wall Street with the implied backing of the U.S. taxpayers.

When responsible legislators tried to rein in the reckless lending, they were blocked. Barney Frank, the pompous elitist who now runs from any responsibility, is on video a dozen times denouncing any move to tighten lending standards. John McCain fought to tighten it up in 2003 and again in 2006 and was rejected by the very same left-wing politicians who now cry crocodile tears about the disaster they worked to create.

As all those bad loans went bad and housing prices began to fall, investors lost confidence, and we find ourselves where we are today. But this is not the “reality” the left wants the American people to accept. They present a far different story.

In their dream-world, none of the things that are on the record – on video tape, in print, in the official documents –- matter. For them, the whole delusional chimera is about predatory lenders conning people into signing loan papers; it’s about a helpless population –- people who can’t tie their own shoes or feed themselves without a government bureaucrat at their side — being taken to the cleaners by slick Wall Street types.

Once again, the socialist hide behind their ideology of victimhood. And once again, it is a lie. Only this time, if the American people get sucked into believing the lie, it could cost us all our freedom and any chance of future prosperity.

The head of the National Urban League has demanded that Treasury Secretary Hank Paulson spew their spin. Barney Frank has been making the rounds of talk shows, pugnaciously claiming he is the savior while ignoring his past actions to enable Fannie and Freddie to inject their poison into the American financial system. Joe “make-it-up-as-you-go” Biden points a finger of blame at everyone except those involved (which may not be all that surprising when one realizes that the single largest contributor to Biden’s political coffers is Bank of America’s MBNA).

These are the battle lines. On one side, facts and recorded history. On the other, perpetrators and co-conspirators weaving the myth of victimhood into a rancid stew of lies and class-warfare.

The outcome is far from decided. And the stakes could not be any higher.


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