Friday, December 28, 2012

Setting The Record Straight Four Years Later

It has long been leftist dogma that "the failed policies of the Bush administration" caused our economic meltdown.  That statement was usually followed by vague references to "deregulation" and Wall St. greed. It has been the single most destructive lie of my lifetime. And because of it, we now have another four years of Obama

I pointed out over four years ago that the left's social engineering with the Community Reinvestment Act (CRA) caused both the housing bubble and the destruction of credit standards - all leading directly to our economic meltdown. Recently, the IBD published a concurence:

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, "Yes, it did. We find that adherence to that act led to riskier lending by banks."

Added NBER: "There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas.

To satisfy CRA examiners, "flexible" lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie's and Freddie's so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to "assist insured depository institutions to meet their obligations under the (CRA)." The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that's what they did. . . .

Read the entire article here. Expect this to get zero play outside of the IBD.

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