Ex-repub

How Did We Get to This Point?

There been numerous commentators talking about the Community Reinvestment Act. I don't understand what is driving this. Yes, the CRA probably results in some loans that default, but have you folks looked at the volume of CRA loans? They are minuscule compared to the current problem. See www.ffiec.gov/cra/defa...

The mess we're in now includes $700 Billion (big B) for loan purchase authorization, plus the AIG bailout of more than $85 Billion, and assuming Fannie plus Freddie's $1.5 Trillion (really Big T) of mortgages. The failure of every loan ever made through the CRA wouldn't make much of a blip in all this pile of money.

There’s lots of blame for this mess to go around:

(1) Phil Gramm’s [R-TX] Commodity Futures Modernization Act, passed during Bush’s first year in office, specifically excluded these instruments from regulation or oversight by the government. This was in keeping with the Republican agenda of keeping the government out of business regulation.
(2) Investment houses and mortgage brokers discovered that they could make lots of money making home loans, packaging them as mortgage-backed bonds, and selling them into the bond market as high-yield, low-risk securities. As a result, they virtually gave away mortgages to anyone willing to take one, knowing that if the loan defaulted, the bond holder – not them – would be hit with the loss.
(3) The bond rating agencies and bond insurers (ie. AIG), paid by the investment houses, did the investment houses a favor instead of doing their job, and approved and insured the bonds.
(4) Speculators, house flippers, and the financially naive took advantage of the almost free money by buying homes that they either couldn’t afford, or planned to resell. Like musical chairs, the speculators are walking away now that the music has stopped. The poor and dumb are once again getting kicked onto the street, and thanks to falling home values, the plain unlucky are getting financially destroyed.

My children and probably grandchildren will be stuck paying for this mess. The investment industry CEO's will take their millions from prior year bonuses and move to the south of France. Some folks will get a deal on their homes at taxpayer expense, if they can hang on long enough.

Hopefully the good thing that will come out of this mess is the death of the Republican belief in unfettered free markets.