CRA - > Clinton CRA -> Credit Lock

[Rafaelloello]

OK, I'll go first in the politics forum.

Disclaimer: What I'm about to relate below comes from my very *limited* and very recent research, so I'm sure I have some things wrong.

I'm sure I'm missing key regulation/deregulation events, but here's what I *think* I know:

1977 - CRA (Community Reinvestment Act) became law to battle "red-lining". My understanding is that banks acted like private businesses (which I think they were?) in that they strove to only write home loans to the best credit risks buying properties in the best neighborhoods. CRA said, "No, No, No!" if you want to stay a bank you must provide financial services to everyone in your service area.

1977-1995 Banks *mostly* adhered to the CRA. I think, from my limited reading, that Chicago got it dialed in particularly well and did adjust their lending styles so that the entire community was better served.

1995 - Clinton Administration changed the CRA to facilitate lending to less creditworthy customers. Some contend that it was mortgages for votes, Clinton sicking Janet Reno on non-complying banks.

The above events gave rise to two new markets:

1. The mortgage broker, who had nearly carte blanche to write bad loans because he had a captive buyer in the local banks, now required to have a set number of these bad loans in their portfolion.

2. The secondary market, as someone needed to come in and package the good loans with the bad loans and get them out of the portfolios of the local banks (who before this were happy to write good loans and hold them until maturity, perhaps? I admit to no being knowledgeable on this point).


Anyway, I *think* this is the framework of where the subprime crisis started, but I'm open to correction because I absolutely am no expert. An interesting side-note is that the Bush administration attempted to take over Fannie Mae and Freddie Mac 3 YEARS AGO, but Barney Frank and the Democrats shot them down, according to the New York Times:

http://query.nytimes.com/gst/fullpage.h ... ton&st=cse

[Rafaelloello]

BTW, In case some of you don't read the entire NYT article from THREE YEARS AGO, here's my favorite quote:

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

[ojavaid]

This is really a fantastic article -- great find. Have you been able to do more research?

[axis_of_evil]

So, to sum up this thread, this whole financial crisis was caused by the government.

Is my understanding correct?