Two sides to every story

This is one of the Right Wing mass e-mails going around. It wishes the reader to believe that the responsibilty for the loan crisis is the Democrats alone.

Subject: What Caused the Loan Crisis

The email: Note: ACORN is one of the principle beneficiaries of Fannie/ Freddie's slush funds. They are currently under indictment or investigation in many states. Barack Obama served as their legal counsel, defending their activities for several years.

DaG response: ACORN wasn't indicted. 4 ACORN workers were and here's a little about one in Kansas City, MO - The Justice Department has a longstanding policy regarding the prosecution of election law or voter fraud cases: the closer to the election it gets, the more cautious prosecutors should be about bringing indictments. Bradley Schlozman -- the former U.S. Attorney for Kansas City and controversial deputy head at the Civil Rights Division -- broke with the policy. Not only that, but there's evidence that he rushed four indictments to land just before last November's election. U.S. attorneys have passed on pursuing similar prosecutions. But Schlozman, an Alberto Gonzalez Republican appointee who'd worked to push voter I.D. laws while in the Civil Rights Division, leaped at the opportunity. The more you learn about Schlozman's decision to indict four voter registration recruiters for the Association of Community Organizations for Reform Now (ACORN) five days before last year's election -- Missouri's Jim Talent was battling Claire McCaskill in one of the closest Senate races in the country --, the worse it looks. In a way this is a little of the pot calling the kettle black. As I wrote in a DaG post, the right claim always just before an election, that ACORN is committing voter fraud. ACORN gets accused of forging registrations even though ACORN flags any that can't be verified and turns all of their registrations over to state officials. Now the left reports the purging of voters in historically Democratic districts by Republican election officials. This year alone Colorado has purged over 100,000 newly registered voters, ( Democratic voters surprise surprise) So let's be fair, most if not all of the states where ACORN has supposedly committed voter fraud, require the voter to show ID at the time of his or her vote. If said voter's ID and registration don't match, they are not allowed to vote. On the other hand when you are purged from a voting list, it literally takes state officials, lawyers, court hearings. . .you know the typical slow turning wheels of justice in order to get your name put back on the voting list. Better hurry too because there's only 3 weeks left.

The Email: IMPORTANT!!!!! The following is a condensation of a series from the Investor's Business Daily explaining "What Caused the Loan Crisis": 1977: Pres. Jimmy Carter signs the Community Reinvestment Act into Law. The law pressured financial institutions to extend home loans to those who would otherwise not qualify. The Premise: Home ownership would improve poor and crime-ridden communities and neighborhoods in terms of crime, investment, jobs, etc.

DaG: The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as redlining. The purpose of the CRA is to provide credit, including home ownership opportunities to under served populations and commercial loans to small businesses.
The vast majority of the subprime loans over the last 8 years did not originate from banks or thrifts:


The Email: Results: Statistics bear out that it did not help.

DaG: As previously stated, the act was intended to reduce discriminatory credit practices against such neighborhoods, not to give unqualified buyers loans. Prior to the Act minority loans were turned down just because of their zip code. The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. During the late seventies there was an increase in the crime rate and a drop in investments and jobs in every sector of the population regardless of race or class. We were in the midst of a recession and the energy crisis.


The Email: How did the government get so deeply involved in the housing market? Answer: Bill Clinton wanted it that way.

DaG: As did George Bush Sr. After the savings and loan scandal that John McCain had a large part in,The Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) was enacted by the 101st Congress and signed into law by President George H. W. Bush. in 1999 due to a $300 million lobbying effort and legislation written by Phil Gramm, bank and lending houses were deregulated. A move that was more about facilitating mergers than creating an efficient regulatory framework.” A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.

The Email: 1992: Republican representative Jim Leach (IO) warned of the danger that Fannie and Freddie were changing from being agencies of the public at large to money machines for the principals and the stockholding few.

DaG: Yup, he did but, Gramm and a lot of other Repubs weren't too interested in what he had to say. Maybe that's why Jim Leach endorses Obama in the up coming election.

The Email: 1993: Clinton extensively rewrote Fannie Mae and Freddie Mac's rules turning the quasi-private mortgage-funding firms into semi-nationalized monopolies dispensing cash and loans to large Democratic voting blocks and handing favors, jobs and contributions to political allies. This potent mix led inevitably to corruption and now the collapse of Freddie and Fannie.

DaG : Yes it's true . . . he did. He had Rubin rewrite the rules. My problem with this paragraph is . . .isn't "quasi-private" and "semi-nationalized" really the same thing? So we're blaming Clinton for turning Fannie and Freddie into what they were before. Completely disagree with the last sentence. Deregulation led to the corruption and selling bundled mortgage securities and credit default swaps caused the collapse.

The Email: 1994: Despite warnings, Clinton unveiled his National Home-Ownership Strategy which broadened the CRA in ways congress never intended.

DaG: “In the spring and summer of 1994, Secretary Henry Cisneros met with leaders of major national organizations from the housing industry to solicit their views about establishing a national homeownership partnership. It's purpose was …streamlining transaction costs, expanding creative financing and public gap financing, and making technological improvements in loan underwriting [that] will reduce the costs of homeownership…. Regulatory reforms will allow developers and builders to reduce the costs of land assembly, housing construction, and home rehabilitation, making homeownership more affordable for willing homebuyers who are now priced out of the housing market (The National Homeownership Strategy. Know that 8 years later Bush liked the strategies and encouraged Fannie and Freddie to adopt these practices and in fact increase the funding.

The Email: 1995: Congress, about to change from a Democrat majority to Republican, Clinton orders Robert Rubin's Treasury Dept to rewrite the rules. Robert Rubin's Treasury reworked rules, forcing banks to satisfy quotas for sub-prime and minority loans to get a satisfactory CRA rating. The rating was key to expansion or mergers for banks. Loans began to be made on the basis of race and little else.

DaG: Can't argue with much here. Only point out that 40 % of the loans were given to minorities. That's from Fannie Mae's census report.

The Email: 1997 - 1999: Clinton, bypassing Republicans, enlisted Andrew Cuomo, then Secretary of Housing and Urban Developement, allowing Freddie and Fannie to get into the sub-prime market in a BIG way. Led by Rep. Barney Frank and Sen. Chris Dodd, congress doubled down on the risk by easing capital limits and allowing them to hold just 2.5% of capital to back their investments vs. 10% for banks. Since they could borrow at lower rates than banks their enterprises boomed.

DaG: Repubs and Dems alike are neck high in this thing. The banking industry lobbied to reduce the remaining regulations on its lending practices. They won a repeal of the Glass-Steagall Act, a law enacted just after the depression as a way to prevent regular savings banks from doing risky things with depositors’ money. A “Chinese Wall” was put in place between banks and investment brokerages, preventing conflicts of interest and limiting financial institutions’ power over both the lending and borrowing sides of the same transactions. With the repeal of the Act in 1999, banks were now free use their capital to lend money to unworthy borrowers, package those loans, and then underwrite the sale of those loans to other institutions—such as pension funds

The Email: With incentives in place, banks poured billions in loans into poor communities, often "no doc", "no income", requiring no money down and no verification of income. Worse still was the cronyism: Fannie and Freddie became home to out-of work-politicians, mostly Clinton Democrats. 384 politicians got big campaign donations from Fannie and Freddie. Over $200 million had been spent on lobbying and political activities. During the 1990's Fannie and Freddie enjoyed a subsidy of as much as $182 Billion, most of it going to principals and shareholders, not poor borrowers as claimed.

DaG: Oh you mean to tell me that when government gives money to a corporation that the little guys don't get any of it? I'm shocked. Meanwhile, the credit industry spent over $100 million lobbying to change bankruptcy laws. Although a corporation in bankruptcy still has its debts erased, the regulations surrounding personal bankruptcy were changed so that personal debts stay on the books forever. The logic they used to argue for the change was that debtors are smart, gaming the system to buy beyond their means and then declaring bankruptcy at the last minute.

The email: Did it work? Minorities made up 49% of the 12.5 million new homeowners but many of those loans have gone bad and the minority homeownership rates are shrinking fast.

DaG: Remember that the figure is 40% not 49%

The email: 1999: New Treasury Secretary, Lawrence Summers, became alarmed at Fannie and Freddie's excesses. Congress held hearings the ensuing year but nothing was done because Fannie and Freddie had donated millions to key congressmen and radical groups, ensuring no meaningful changes would take place. "We manage our political risk with the same intensity that we manage our credit and interest rate risks," Fannie CEO Franklin Raines, a former Clinton official and current Barack Obama advisor, bragged to investors in 1999.

DaG: McCain spokesman Brian Rogers points to three items in the Washington Post in July and August. It turns out that the three items (including an editorial) all rely on the same single conversation, between Raines and a Washington Post business reporter. A conversation that took place during a photo shoot. Raines said he had taken a couple of calls from Obama "campaign staffers" seeking advice on mortgage and housing policy matters. He is not an advisor to Barack Obama. McCain's campaign manager is Rick Davis. In 2000, Davis became the head of a group called the Homeownership Alliance, a Fannie Mae and Freddie Mac advocacy group. Since 2006, Davis's firm has been paid a $15,000-a-month consulting fee from Freddie Mac. Do you really want to throw stones?

The email: 2000: Secretary Summers sent Undersecretary Gary Gensler to Congress seeking an end to the "special status." Democrats raised a ruckus as did Fannie and Freddie, headed by politically connected CEO's who knew how to reward and punish. "We think that the statements evidence a contempt for the nation's housing and mortgage markets" Freddie spokesperson Sharon McHale said. It was the last chance during the Clinton era for reform.

DaG: Regulation from a Republican controlled congress? Are you kidding me?
Fannie Mae, Freddie Mac, Congressmen Richard Baker and Paul Kanjorski, and a bipartisan group of members of Congress announced the voluntary initiatives in October 2000.
In general terms, both Fannie Mae and Freddie Mac agreed to . . .
• issue subordinated debt,
• meet certain liquidity standards,
• enhance their disclosure of interest rate and
credit risk,
• obtain and disclose annual credit ratings, and
• self-implement a risk-based capital standard on
an interim basis.10

The email: 2001: Republicans try repeatedly to bring fiscal sanity to Fannie and Freddie but Democrats blocked any attempt at reform; especially Rep. Barney Frank and Sen.Chris Dodd who now run key banking committees and were huge beneficiaries of campaign contributions from the mortgage giants.

DaG: I don't want to beat a dead horse but once again but the Democrat minority can not block anything in a Republican majority congress, nor do they have the votes to veto.

The email: 2003: Bush proposes what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." Even after discovering a scheme by Fannie and Freddie to overstate earnings by $10.6 billion to boost their bonuses, the Democrats killed reform.

DaG: "This Administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country."- President George W. Bush, December 16, 2003
The President set a goal to increase the number of minority homeowners by 5.5 million families by the end of the decade. Through his homeownership challenge, the President called on the private sector to help in this effort. More than two dozen companies and organizations have made commitments to increase minority homeownership - including pledges to provide more than $1.1 trillion in mortgage purchases for minority homebuyers this decade.
In one speech he told Americans that . . ."a first time home buyer doesn't have to buy a lousy home, if they put their mind to it they can live in a home just as nice as anyone else." Most folks I know bought a "starter home' . . .something they could afford, then as their income grew so did their homes. Apparently the Commander in Chief thought it was a good idea to put people in homes they couldn't afford.

The email: 2005: Then Fed chairman Alan Greenspan warns Congress: "We are placing the total financial system at substantial risk." Sen. McCain, with two others, sponsored a Fannie/Freddie reform bill and said, "If congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole." Sen. Harry Reid accused the GOP of trying to "cripple the ability of Fannie and Freddie to carry out their mission of expanding homeownership." The bill went nowhere.

DaG: Maybe if congress and the administration weren't spending a billion dollars a month occupying Iraq, using our military as security guards for companies like Haliburton, giving tax incentives to corporations that ship jobs overseas, maybe just maybe they could have convinced their Republican controlled congress to pass a viable housing bill.

The email: 2007: By now Fannie and Freddie own or guarantee over HALF of the $12 trillion US mortgage market. The mortgage giants, whose executive suites were top-heavy with former Democratic officials, had been working with Wall St. to repackage the bad loans and sell them to investors. As the housing market fell in '07, subprime mortgage portfolios suffered major losses. The crisis was on, though it was 15 years in the making.

DaG: The "crisis" is nearly 30 years in the making and it began with the Republican savior called Reagan. His deregulation, "Freidman" free market capitalism, trickle down economic cancer has now mastisized into the very fabric of society. The "me" decade led to people living beyond their means and a belief that a good American is one who consumes and incurrs credit card debt. Allowing the very credit and financial institutions to govern themselves without oversight only fostered the corruption and ponsy schemes that they knew damn well would eventually bankrupt them. But they didn't care because they knew they would get bailed out by the very people they stole money from. Why do you think that the credit card companies got to write the new babkruptcy laws under the Bush administration? Simple. If average Joe can no longer file bankruptcy . . .they make a much larger profit. They are pushers. Let me give you an example: Credit card companies send pre approved applications in the mail, offer 0 interst for the first 6 months, betting that you will max out your card, and the first time a payment is a day late your interest rate will go to 20 or 30 percent. If their "Big Brother" credit network shows you were late on any payment be it a car loan, another credit card, a house payment, or if they feel you have too much revolving credit, or if it's Wednesday . . . look for an increase in APR. This is very profitable for the credit card companies. They receive monthly payments on just the interest and the principal will never be paid down. That's a good gig if you can get it.

The email: 2008: McCain has repeatedly called for reforming the behemoths, Bush urged reform 17 times. Still the media have repeated Democrats' talking points about this being a "Republican" disaster. A few Republicans are complicit, but Fannie and Freddie were created by Democrats, regulated by Democrats, largely run by Democrats and protected by Democrats. That's why taxpayers are now being asked for $700 billion!!

DaG: Again, it wasn't the CRA iniative put forth by Democrats that brought down Freddie and Fannie. It was opportunism and greed. Dems and Repubs alike can share in the responsibility. Greed has no horse in this race. Greed is the race. Yes Fannie and Freddie were allowed to get "too big for the britches" but, this is what deregulated free market capitalism is all about. I can't believe all these Repubs who used to do nothing but bitch and moan about how bad government rules and regulations were for the economy, now calling for more intervention, regulation and oversight. Kind of reminds of the two brothers that get caught with their hands in the cookie jar and the older brother wiping the crumbs from his mouth says, " I told him it was a bad idea and that we shouldn't do it."
Interesting to note that this right wing propaganda email doesn't once mention predatory lending, Phil Gramm, or Rick Davis's role in the failure of Fannie and Freddie. I've already gone into detail about Mr. Davis role so, let's take a closer look at "Foreclosure Phil" . . . In 1999, former Senator Phil Gramm set out to completely gut the Glass-Steagall Act, and did so successfully, replacing most of its components with the new Gramm-Leach-Bliley Act: allowing commercial banks, investment banks, and insurers to merge (which would have violated antitrust laws under Glass-Steagall).

In closing should anyone else receive these one sided pieces of revisionist history, please take the time to research the supposed "facts". Neither party's hands are unsullied, there is enough blame to go around, however with each passing day it becomes more apparent the the Milton Freidman approach to capitalism only benefits those at the very top of the economic food chain.

"I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson

"These capitalists generally act harmoniously and in concert, to fleece the people." -Abraham Lincoln

DaG Out