Deregulation And America’s Architects of Destruction
Earlier this week, I violated a rule I have of not arguing politics with someone I don’t know on social media. However, on Facebook a woman posted a sign that said:
If you think it wasn’t deregulation that caused the financial crisis, you are an idiot.
Knowing that less than 7% of people know the true causes of the financial crisis – because I run polls on this from time to time offering 7 answers with only 1 of them being right – I replied:
In fact it was not deregulation; rather it was caused by government manipulation of the mortgage banking and housing industry by the Clinton administration using the Community Reinvestment Act (CRA) to force quotas on the banks and mortgage banks. These increasing quotas required that the lenders, or banks and mortgage banks, make more and more loans to people who could not qualify under Fannie Mae and Freddie Mac – Government Sponsored Enterprises (GSE’s) – that had kept default rates under 2% since records were kept back into the late 1940′s.
Well, not wanting to be confused with facts, this woman lit into me with babble that quickly turned to vitriol and made it evident she was a “low information” Democratic voter that had no clue what deregulation meant, or even what the regulations are that are usually targeted by someone who actually can at least have an intelligent discussion on this topic. The regulations I am referring to are the Glass-Steagall Act (GSA) and the Graham-Leach-Bliley Act (GLBA), which replaced GSA. GSA prevented banks from using depositors money to deal in securities like mortgage-backed securities, or MBS’s, and GLBA left those prohibitions intact. That fact alone destroys the “low information” voters theory that deregulation caused the financial crisis.
She and I went back and forth for about 15 minutes on Facebook. She was clearly embarrassed, started throwing F-bombs at me, and took down the entire post so that her ignorance on the matter would no longer be there for her public embarrassment. This is what we are up against when it comes time to vote. Education is key so in this post I’m providing the facts and some dates. They will also destroy the misinformation campaign orchestrated and repeated by “low information” voters to cast blame for the financial crisis on deregulation, or “the failed policies of the previous administration” and “Fat Bankers and Greedy Wall Streeters.”
1976 – the CRA is passed by Jimmy Carter. Liberals also called this the Affordable Housing Act. There is a lot of irony in that name today considering just how unaffordable the mortgage payments became to people who never met GSE guidelines, but nonetheless were given mortgage loans on homes they could not afford. Jimmy Carter was a milk-toast president, so the CRA lingered with very little action taken by the banks toward the Affordable Housing goals. One problem Carter didn’t address was the fact that the GSE’s, by charter, could only buy loans that were GSE qualified, known both as prime loans and A-paper loans, which experienced less than 2 percent default rates since the 1940′s. It was a very stellar benchmark that proved out the efficacy of those guidelines. If the GSE’s could not buy “subprime” loans from the banks, the banks would run out of money quickly, and the social justice CRA languished.
Then, in 1995 a lawsuit was filed on behalf of a woman named Selma Buycks-Robertson whose mortgage loan had been declined. A 6-8 person team from a Chicago law firm sued Citi for racial discrimination even though an audit of her file showed she had poor credit, spotty job history, and didn’t meet GSE guidelines.
The suit became a class action suit with many people represented, and several years later, the suit was settled for over $1M. The die was cast and the attorneys knew they could hold “racial discrimination” as a gun to the head of the banks and force them to make what are now known best as “subprime loans.” Clinton had his Treasury Secretary, Robert Rubin, re-write the very charters of the GSE’s, allowing them for the first time ever to buy subprime mortgages and the spigots opened wide. Clinton’s AG Janet Reno, was in charge of threatening the banks that didn’t meet their ever-increasing quotas. People with poor to bad credit, bad job history and zero money for a down payment were allowed to buy homes with interest rates as low as 0% and the party was on nationwide, evidenced by the largest (and artificial) housing boom in history. (See the chart nearby)
When the music stopped in late 2006, early 2007, the walls came crashing down. At first the media rightly labeled this the “subprime mortgage crisis,” but the architects of this unsurprisingly and quickly coerced the media into calling it “the financial crisis” to get the spotlight off of the CRA and “Affordable Housing.” And the rest as they say is history. These facts are documented and irrefutable.
When I am speaking on this topic, I always end with this rhetorical question to the audience – Can you guess who one of the attorneys was on that legal team in Chicago that filed that first class action lawsuit?” Answer – None other than Barack Obama. I liken Obama to the little Dutch Boy that pulled his finger from the dike. A trickle turned into a flood and the global economy is going to be paying for his failed policies toward “social justice” for decades to come.