Bill Herbert

The Origin of Financial Crises

>> All of this seems to miss that point that NONE of this would have happened if the FEDERAL GOVERNMENT, in particular the Clinton Administration, later abetted by Barney Frank, etc. had not only PERMITTED, let alone ENCOURAGED, not to mention PRESSURED, but in many cases for heaven's sake *** ORDERED lending institutions to ABANDON SOUND LENDING PRACTICES and write mortages for people whom they KNEW would probably not pay them back***<<

Let's set the record straight here. This is an urban myth - the*** lie *** that banks were "ordered" to make loans to deadbeats or people with grossly inadequate incomes. That is just a bunch of banker BS which tries, and fails, to divert attention from the hard, cold fact that the banks took inordinate risks, and made many thousands of very bad loans, because they were making a lot of money by doing so. In addition, the BANKS, not the Feds or any Govt agency, were the ones who corrupted the entire rating process. And they created the toxic mortgage derivatives that enabled them to dump the trash loans onto duped investors, which later blew up in their faces. That FACT has been thoroughly proven and documented.

There was NEVER any order or law passed which said that banks had to make bad loans. What the Community Reinvestment act said was that the banks had to make loans in poor economic areas in proportion to their deposits received from those areas. In other words, you can't take savings deposits from the poor, and lend to the rich, without also making a proportional amount of loans or credit available to the poor areas. This would include loans made to businesses such as restaurants, construction firms, janitorial services and so on.

In fact, I'm not aware of any amounts being specifically earmarked for residential loans, although it certainly WAS encouraged, as a way to boost home ownership levels among the "lower middle class" and thereby promote more stable communities by virtue of increased home ownership. This is not a flawed goal in my opinion. But the greedy, sloppy bankers found a way to make a quick buck, while ultimately endangering the health of the financial system, which now affects rich and poor alike.

So let's put the blame squarely where it belongs - on Wall Street banks like Lehman, Bear, MS, GS, Merrill etc. plus the crooked ratings agencies.

And stop distorting the truth by claiming that Congress somehow "ordered" this mess to occur.

I assure you - you cannot cite ONE concrete example of that being the case.