Housing MeltdownWEEB Radio Commentary by Wes May 11/7/2011
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Occupy Wall Street agitates for government meddling to fix ill-defined economic grievances. But government meddling, driven by liberal ideology, created the subprime mortgage debacle that led to recession. So the OCCUPIERS’ cure is really just more of the same that created the problem.
Here is some history on government meddling that undermined the home mortgage sector and precipitated the 2008 financial meltdown. Critically, new government policies were based on social engineering goals rather than fundamentals of finance. Here are some lowlights on the trip from vibrant economy to brink of bankruptcy:
* 1977: Carter administration passed Community Reinvestment Act (CRA) which forced banks to make loans to under-
qualified applicants. This Act subordinated financial diligence to pursuing a social objective of affordable housing.
* 1995: Clinton Administration increased pressure for affordable housing by further loosening underwriting standards for low-
and mid-income borrowers..
* April 2001: For first time, Bush Administration red flagged operational risks in FannieMae and FreddieMac, the Govern-
ment-sponsored Enterprises (GSE’s).
* Sep 2003: Treasury Secretary Snow recommended that Congress create new Agency to supervise and regulate GSE’s.
* During this timeframe, Senate and House Democrats steadfastly defended GSE’s and rebuffed any warnings concerning
safety and soundness in GSE leadership or policies.
* November 2003: Bush administration upgrades warning to “systemic risk,” that extended beyond housing market.
* After 2008 crash, Sen Dodd initiated revisionist history by questioning why Bush had not acted more decisively. He forgot
that Bush Administration had warned Congress 34 times and had recommended that Congress establish an agency to
supervise and regulate GSE’s.
EPILOGUE: In addition to pushing our economy into recession, the consequences of this government meddling were that Fannie paid $400M and Fannie CEO, Raines, paid $24.7M in fines for their roles in the accounting scandal.
I am Wes May, proud member of Moore Tea Citizens
Here is some history on government meddling that undermined the home mortgage sector and precipitated the 2008 financial meltdown. Critically, new government policies were based on social engineering goals rather than fundamentals of finance. Here are some lowlights on the trip from vibrant economy to brink of bankruptcy:
* 1977: Carter administration passed Community Reinvestment Act (CRA) which forced banks to make loans to under-
qualified applicants. This Act subordinated financial diligence to pursuing a social objective of affordable housing.
* 1995: Clinton Administration increased pressure for affordable housing by further loosening underwriting standards for low-
and mid-income borrowers..
* April 2001: For first time, Bush Administration red flagged operational risks in FannieMae and FreddieMac, the Govern-
ment-sponsored Enterprises (GSE’s).
* Sep 2003: Treasury Secretary Snow recommended that Congress create new Agency to supervise and regulate GSE’s.
* During this timeframe, Senate and House Democrats steadfastly defended GSE’s and rebuffed any warnings concerning
safety and soundness in GSE leadership or policies.
* November 2003: Bush administration upgrades warning to “systemic risk,” that extended beyond housing market.
* After 2008 crash, Sen Dodd initiated revisionist history by questioning why Bush had not acted more decisively. He forgot
that Bush Administration had warned Congress 34 times and had recommended that Congress establish an agency to
supervise and regulate GSE’s.
EPILOGUE: In addition to pushing our economy into recession, the consequences of this government meddling were that Fannie paid $400M and Fannie CEO, Raines, paid $24.7M in fines for their roles in the accounting scandal.
I am Wes May, proud member of Moore Tea Citizens
