Tuesday, 30 September 2008

The origins of the meltdown

There’s no question that the main blame for the current financial meltdown should be laid at the Gucci-shod feet of the Wall St. Masters of the Universe . However, the genesis goes back a bit further. To the Clinton years, in fact. And as is so often the case, was driven by minority rights and anti-discrimination objectives.

On July 15, 1993, Clinton signed a law that encouraged lending institutions to serve their communities, followed by regulations “in support of the law” to rate lenders in how well they served the minorities in their communities.

Immediately, they found that Blacks and Hispanics were turned down for loans at a much higher rate than Whites. In fact, if factors such as credit worthiness and being able to fill out an application were considered, the rates for acceptance were statistically similar.


No surprise there

That evidence was ignored.

No surprise there either

Lending institutions were rated against other institutions and those that rated low were punished when it came to dealings with the Federal Reserve. It was taken to the point the banks were told where they had to open new branches, so they were serving areas with high percentages of minorities. Then, the government went to work pressuring the lending institutions to make loans to the less credit worthy.

In 1999, Clinton signed a new law, repealing one that had separated lending institutions, security traders, and insurance companies. With the new law, lenders, now acting as security traders, were allowed to bundle mortgages as securities and sell them to other institutions. In this way, lenders didn’t have to worry about the poor credit ratings of those they had given loans to because they could just sell the loans to others without any further liability.

That made it very easy to comply with the pressure they were getting to lend more money to minorities, regardless of credit rating. All they had to do was come up with an innovative loan that would appeal to those with little reliable income. Hence, the sub-prime loan was born. Soon domestic and foreign financial institutions, pension funds and insurance companies were buying the newly formed securities like crazy. After all, since they were promoted by the US government, wouldn’t they be protected?

And, as they say, the rest is history.

3 comments:

Anonymous said...

the banks were openly giving home loans to illegal aliens, using Matricula cards issued by the Mexican Consulate .
They knew they were illegal and they gave one gardener from mexico a home loan of $650,000 for a house when he only made 9.00 an hour.
Most of the foreclosures came out of Southern Ca ,.where the illegals have taken over.
Of course this will never be mentioned. Congress and the Corporations love illegals and Hate Americans.
May the top five percent be eaten or roasted by the bottom 25 percent.
tasha stoptheinvasionforegon

Anonymous said...

The very people who caused the problem are now supposed to be solving it - and deciding the terms they'll give themselves!

kerdasi amaq said...

I would have said that it was the result of Sept 11, and Bush's decision to invade Iraq and Afghanistan coupled with the Fed holding interest rates at 1% after 9/11