Sunday, April 10, 2016

Causes of the 2008 Housing Crisis

People like to blame the housing crisis on 2007-2008 on George Bush and his administration. Bush is certainly not blameless, but he was only one small piece of the puzzle of events leading up to the crash. Jimmy Carter, Barack Obama, GHW Bush, Bill Clinton, the 102nd and 106th congresses, Barney Frank, Fannie Mae and Freddie Mac – the two government backed home loan groups are also highly culpable. A series of government missteps over 30 years guided us into the crash.

Back before lobbyists made so much money available to politicians, banking regulations were based on common sense. This was the time when the Glass-Steagall Act of 1932 and the US Banking Act of 1933 were written and signed into law by Herbert Hoover. The names are used interchangeably, but when people talk about Glass-Steagall, they are referring to four provisions of the Banking Act that dealt with preventing commercial banks affiliation with securities firms.  The laws were sponsored by two Democrats, Senator Carter Glass of Virginia and Representative Henry Steagall of Alabama.

The Bank Holding Company Act of 1956 signed by Eisenhower gave the Federal Reserve board of governors approval authority over establishment of Bank holding companies.

The Community Reinvestment Act of 1977 was signed into law by Jimmy Carter. The purpose of this act was to make it easier for low-income households to get mortgages. The act got the ball rolling toward the financial crisis of 2007-2008, but there were more government missteps to occur before the table was completely set. Again, the government goals can be noble and still cause disastrous outcomes.

The Housing and Community Development act of 1992 required HUD to set goals for getting minorities that could not afford houses into houses anyway. Real brainpower at work here. This noble but stupid idea was signed into law by GHW Bush.

The banking lobby was providing lots of money to lobbyists for distribution to congress persons. The Bank Holding Company law was overturned by the Riegle Neal Interstate Banking and Branching Act of 1994, which Bill Clinton signed into law.

In 1994 a young Chicago lawyer named Barack Hussein Obama filed a class-action lawsuit against Citicorp for not making loans to people in minority communities at the same rate as in other communities. Trouble was a-brewing.

In 1998 Citicorp merged with Traveler’s Group into Citigroup, which combined banking, securities and insurance services into one company. The group consisted of Citibank, Travelers, Smith Barney and Primerica. This was clearly illegal under Glass-Steagall and the now-repealed Bank Holding Company Acts. The Federal Reserve gave Citigroup a temporary waiver. Soon after, President Clinton declared Glass-Steagall defunct.

Are you starting to see the picture here?  Government agencies are trying to put minorities into homes they cannot afford and punishing banks and mortgage companies that will not go along with this ill-conceived plan. Most of the pieces for disaster were already in place long before GW Bush was elected.

Next: Fannie, Freddie and Barney

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