Great Recession 2008-2009
US Govt over regulated housing market.
This lead to a housing bubble.
Community Reinvestment Act ( CRA ) extensions in 1996 required banks to issue risky or subprime loans.
In 1996, US Govt encouraged investment banks to package subprime loans so as to leverage risks of individual loans. Investment banks were reluctant (yes – read NY Times articles about this). Bear Stearns chose to be first and profited well; many banks followed.
In 1999, HUD mandated that by 2007, 55% of Fannie Mae and Freddie Mac financing had to be for “subprime” loans. In 2007 this was realized along with $5.5 trillion in very risky loans, much of this toxic. In Sept 2008 Fannie and Freddie were bankrupt. The US Govt bailed both out. So far $200 billion in tax payer money has been spent for Fannie / Freddie. Eventually as much as $1 Trillion will be spent by taxpayers.
Community Organizers protested on lawns of bank CEO’s demanding subprime loans. Bankers were accused of racism if they resisted.
Banks largely accommodated to the above requests. Bankers actually formed a fund for Acorn so Acorn would refer potential loan candidates to them. Us Govt heavily funded Acorn (which we learned later was a very corrupt organization).
Barnet Frank, from 2003 on resisted several efforts to reign in Fannie / Freddie risky financial leverage. In July 2008, Barney stated both were solvent. This froze many investors who would later be wiped out at time of Fannie / Freddie bankruptcy 2 months later.
Dec 26, 1010