How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable
BY TERRY JONES
INVESTOR'S BUSINESS DAILY
Posted 9/24/2008
One of the most frequently asked questions about the subprime market meltdown and housing crisis is: How did the government get so deeply involved in the housing market?
The answer is: President Clinton wanted it that way.
Fannie Mae (FNM) and Freddie Mac, (FRE) even into the early 1990s, weren't the juggernauts they'd later be.
While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie's and Freddie's rules.
In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.
Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended.
Addressing the National Association of Realtors that year, Clinton bluntly told the group that "more Americans should own their own homes." He meant it.
Clinton saw homeownership as a way to open the door for blacks and other minorities to enter the middle class.
Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin's Treasury Department to rewrite the rules in 1995.
The rewrite, as City Journal noted back in 2000, "made getting a satisfactory CRA rating harder." Banks were given strict new numerical quotas and measures for the level of "diversity" in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.
Loans started being made on the basis of race, and often little else.
"Bank examiners would use federal home-loan data, broken down by neighborhood, income group and race, to rate banks on performance, " wrote Howard Husock, a scholar at the Manhattan Institute.
But those rules weren't enough.
Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.
Clinton's HUD secretary, Andrew Cuomo, "made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis," the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.
Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks.
Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsore d enterprises boomed.
With incentives in place, banks poured billions of dollars of loans into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income.
By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market — a staggering exposure.
Worse still was the cronyism.
Fannie and Freddie became home to out-of-work politicians, mostly Clinton Democrats. An informal survey of their top officials shows a roughly 2-to-1 dominance of Democrats over Republicans.
Then there were the campaign donations. From 1989 to 2008, some 384 politicians got their tip jars filled by Fannie and Freddie.
Over that time, the two GSEs spent $200 million on lobbying and political activities. Their charitable foundations dropped millions more on think tanks and radical community groups.
Did it work? Well, if measured by the goal of putting more poor people into homes, the answer would have to be yes.
From 1995 to 2005, a Harvard study shows, minorities made up 49% of the 12.5 million new homeowners.
The problem is that many of those loans have now gone bad, and minority homeownership rates are shrinking fast.
Fannie and Freddie, with their massive loan portfolios stuffed with securitized mortgage-backed paper created from subprime loans, are a failed legacy of the Clinton era.
Story URL:
http://www.investor s.com/ editorial/IBDArticl es.asp? artsec=16&artnum=1&issue= 20080924
I got this message from a friend, Ramon.
Subject: RE: Let's bring gas prices down!
Hi All, Here are some tips from a family friend (Ramon Pilla) on how to get
the most of your gasoline money,( besides boycotting the 2 giant gasoline
suppliers). Unable to forward sooner, hope these help as well.
I did not know you guys are paying this much for gasoline, almost $4 per
gal. or four litter. Here in calif we are also paying higher to $ 3.50 per
gal.But my line of work is in petroleum pipeline for about 31 years now., so
here are some tricks to get more of your money's worth for every litter.
Only buy or fill up your car or truck in the early morning when the ground
temperature is still cold. Remember that all service stations have their
storage tanks buried below ground. The colder the ground the more dense is
the gasoline, when it get warmer gasoline expand, so buying in the afternoon
or in the evening, what your 1-litter is not exactly 1-litter. In petroleum
business, the specific gravity and the temperature of the gasoline, diesel
and jet fuel, ethanol and other petroleum products play an important role.
Here in KinderMorgan pipeline where I work in San Jose, CA we delivered
about 4 million gallons in 24-hours period thru the pipe line, one day it's
diesel the next day is jet fuel, and gasoline, regularand premium grade. We
have 34-storage tanks here with a total capacity of 16,800,000 gallons. So
you see a 1-degree rise in temps is a big deal for the business,But the
service stations do not have temperature compensation at the pump. Also one
more reminder, if there is a gasoline truck bringing loads at the time when
you have to buy gas do not fill up, most likely the gasoline been stirred up
when the gas is being delivered, you might get some of the dirt that settled
at the bottom. When you're filling up do not squeeze the trigger of the
nozzle to a fast mode, if you look up you will see that the trigger has
three (3) stages: lo, mid, and hi, with slow mode you should be pumping on
low speed thereby, minimizing the vapours that were created while you are
pumping, all hoses at the pump are sort of corrugated, that one is a return
line for vapour's recovery for the gas that already been metered. If you are
pumping on fast rates, the liquid that goes to your tank some become
vapours, those vapours were being sucked up back to the underground tank so
that you're getting less worth of your money. One of the most important tip
is to fill up when your gas tank is half full or half empty. The reason for
this is, the more gas you have in your tank the less air occupying it's
empty space, remember gasoline evaporate fast than you can think of. You see
all gasoline storage tank has an internal floating roof, this roof serves as
zero clearance between the gas and the atmosphere, it minimizes the
evaporation. Unlike the service stations, here where I work every truck
loads that we loads are temperature compensated so that gallons or litter is
actually the exact amount. Hope this will help you guys about your pain in
the pump cost. Ramon
I think, the only solution to obtain peace and unity is to love one another and pray those who persecuted us. War in Iraq will not end the conflict. It will only worsen our situation. Use the power of prayer with love and you will see the interesting results. May God bless America!
