Jimmy Carter, Bill Clinton Share Blame for Subprime Mortgage Recession, Government Overshoot

The current Wall Street quakes have their origins in the Jimmy Carter administration of the late 1970s, and the "affirmative action" banking laws Carter instigated. Bill Clinton only made things worse by adding more muscle to affirmative action banking enforcement.

To hear today's Democrats, you'd think all this started in the last couple years. But the crisis began much earlier. The Carter-era Community Reinvestment Act forced banks to lend to uncreditworthy borrowers, mostly in minority areas.

Age-old standards of banking prudence got thrown out the window. In their place came harsh new regulations requiring banks not only to lend to uncreditworthy borrowers, but to do so on the basis of race.

These well-intended rules were supercharged in the early 1990s by President Clinton. Despite warnings from GOP members of Congress in 1992, Clinton pushed extensive changes to the rules requiring lenders to make questionable loans.

Lenders who refused would find themselves castigated publicly as racists. As noted this week in an IBD editorial, no fewer than four federal bank regulators scrutinized financial firms' books to make sure they were in compliance.

Failure to comply meant your bank might not be allowed to expand lending, add new branches or merge with other companies. Banks were given a so-called "CRA rating" that graded how diverse their lending portfolio was.

It was economic hardball.

"We have to use every means at our disposal to end discrimination and to end it as quickly as possible," Clinton's comptroller of the currency, Eugene Ludwig, told the Senate Banking Committee in 1993.

And they meant it.

In the name of diversity, banks began making huge numbers of loans that they previously would not have. They opened branches in poor areas to lift their CRA ratings.

Meanwhile, Congress gave Fannie and Freddie the go-ahead to finance it all by buying loans from banks, then repackaging and securitizing them for resale on the open market.

That's how the contagion began.

With those changes, the subprime market took off. From a mere $35 billion in loans in 1994, it soared to $1 trillion by 2008. _IBD

Once government institutes such economically destructive laws in perpetutity, the destructive snowballing begins. Of course, given the 15 second average attention span of most voters, Democrats such as Pelosi and Frank are safe in their dishonest double speak and outright deceptions. The media will certainly never hold their feet to the fire. The king of "affirmative action" politicians, Barak "Hollow Man" Obama, has a much better chance of being elected if voters do not understand that he will accelerate the entire process exponentially.

Of course, computer models are also to blame--the rule of GIGO allowing wall street investment bankers and Fannie Mae kleptocrats that the risk was but slight. Even global warming's Al Gore, James Hansen, and carbon trading all come in for their fair share of the blame--at least for Lehman Bros. collapse. A sucker born every minute.

But the fact is, President Bush in 2003 tried desperately to stop Fannie Mae and Freddie Mac from metastasizing into the problem they have since become.

Here's the lead of a New York Times story on Sept. 11, 2003: "The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago."

Bush tried to act. Who stopped him? Congress, especially Democrats with their deep financial and patronage ties to the two government-sponsored enterprises, Fannie and Freddie.

"These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis," said Rep. Barney Frank, then ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

It's pretty clear who was on the right side of that debate.

As for presidential contender John McCain, just two years after Bush's plan, McCain also called for badly needed reforms to prevent a crisis like the one we're now in.

"If Congress does not act," McCain said in 2005, "American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole."

Sounds like McCain was spot on. _IBD

Thanks, Jimmy Carter. Thanks, Bill Clinton. Thanks in advance, Barak "Rezko's Boy" Obama. We really owe you all, big time. And the media, yes indeed, the media.

Some interesting perspective on the problem at Hall of Record blog (scroll down)