Ben Simonton

Hedge Funds May Have Gone Too Far

Don't forget the history of giving mortgages to people who can't afford a downpayment. In 1977 Congress passed the Community Reinvestment Act trying to force banks lend to these people. Banks were ranked by the communities they served and eventually were forced by four government regulators and Congressional Pols, mostly Democrats to lend to poor people. Then Clinton finished it off in 1995 with a revision to the act which further coerced lenders. It also created a new class of securities, Mortgage Backed Securities. Using them, banks giving mortgages could cobble a whole bunch of them together and sell them in the secondary market to investors all over the world. This made it very profitable for mortgage originators to issue lots of mortgages because they could be sold so easily to investors.

There were lots of groups reporting on what banks were doing and lobbying Congress, one of the largest being Acorn which taught Obama how to be a community organizer helping poor people get mortgages and other help.

So Congress and the government and the lobbyists created the whole crisis by creating Mortgage Backed Securities and by literally pummeling financial institutions to lend to the poor, those who could not
afford 20% down or anything down? And once MBSs were created, mortgagors had a way to unload what they knew to be high risk paper to investors thus making them more willing to make those mortgages and satisfy Congress.

Best regards, Ben