#ObamaRecession – Part 2

In addition to … https://economics501.wordpress.com/2012/09/02/obamarecession-mitt-must-call-bo-out-on-this/

Below is more evidence for Mitt to use to counter BO’s main campaign point that Bush tax cuts caused such a great recession he needs more time.  Mitt must make this very clear because BO’s main opportunity right now to win is to state that Bush policies caused the Recession and that Mitt via his tax proposals is another Bush so expect a worse Mitt economy than BO economy.  Many believe this myth.  So Mitt must counter this over and over; otherwise he will loose.  So far Mitt’s campaign does not counter this myth.

Root cause of Great Recession was decade or more of misguided government mortgage policies which resulted in lenders abandoned prudent underwriting standards altogether.

Here are some facts:

In 1995, Clinton set numerical targets for lending in predominantly minority census tracts under a revised Community Reinvestment Act, and added several hundred bank examiners to enforce the tougher CRA rules. Banks that failed had their expansion plans put on hold, a slow death sentence in an era of bank mergers and acquisitions.

CRA ratings were then made public, egging on Acorn and other radical inner-city groups, who used the reports to extort banks for more than $6 trillion in subprime and other loan set-asides by 2008.

When bankers resisted being saddled with so many additional risky loans, Clinton tapped Fannie Mae and Freddie Mac to take them off their books, while freeing bankers to originate more of the political loans. He directed HUD to hike Fannie’s and Freddie’s goals for underwriting affordable loans, which remained in force throughout the 2000s.

When the mortgage giants pushed back, complaining it would be hard to meet the higher targets, Clinton pushed them to load up on subprime loans.

He also authorized Fannie and Freddie for the first time to buy subprime securities to earn credits against the HUD goals. The mortgage giants jumped at the chance, since it allowed them to meet the onerous new goals.

A 2005 HUD report attributed the explosion in subprime securities between 2001 and 2004 to HUD’s tougher goals, along with tougher CRA enforcement. Between 2004 and 2006, the mortgage giants bought $613 billion, or 20%, of the private-market securities created to meet their demand under HUD rules.

For good measure, Clinton late in his second term installed several of his cronies, including Franklin Raines, on the inside of Fannie and Freddie. They in turn bought loans from Countrywide and other subprime lenders, who signed “fair lending” contracts with HUD obligating them to meet lending quotas.

Thus the government created a feeding frenzy for subprime loans by putting Fannie and Freddie and private lenders in competition through quota systems enforced by HUD and Treasury.

At the same time, Clinton enlisted prosecutors to sue banks and lenders for allegedly discriminating against minority borrowers, driving banks and subprime lenders deeper into risky areas.

Clinton’s policies for the first time threw millions of previously unqualified buyers into the mortgage mix, many of whom later refinanced into even riskier adjustable-term subprime loans which defaulted in droves before the crisis.

Clinton’s easy-credit orgy fed a historic bubble that began in 1997 and finally burst in 2007.







About economics501

1 - free market Capitalist; 2 - Fitness Entrepreneur; 56 years old, VP at an Investment Bank in NYC, ex Venture Capitalist, happily married with 2 girls. Education: Rutgers and NYU. I allow Ted Hruzd, my friend to blog at will here. He has many posts here. I have known Ted since we were both students at NYU. Ted also works for an Investment Bank as a VP in Equity Global Markets. ------------------------- I was very very Socialist leaning as a 22 year old. I then strongly believed in Gov role in helping the poor. However, as a USDA Child Nutrition Programs, I personally accounted for millions of fraud, abuse, and waste of tax payer money. I came to believe that the poor would be best served with less Gov programs and more with direct aid via tax system. Then after 5 years I became a free market capitalist, was a venture capitalist in 2007 and helped start 2 high tech companies. I dedicate this site to champion free market capitalism as the best road to Prosperity. Please join in. If you disagree, fine, but please post with dignity and class and be civil. Argue with facts always.
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