Saturday, November 15, 2008
Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” —Ronald Reagan
THE MESS THAT IS THE MORTGAGE BANKING BUSINESS began in 1992 with the Garn-St.Germain Act.Legislation that liberalized investment policies for savings and loan associations in the United States, leading to substantial losses covered by deposit insurance in the late 1980s. IT ALONE DID NOT CAUSE THE DEBACLE IN THE SUB-PRIME MORTGAGE BUSINESS, BUT IT LIT THE FUSE THAT EXPLODED THE ECONOMIC BOMB JUST BEFORE THE NOVEMBER ELECTION!
The Act as introduced, created a fund for loans to those troubled banks and savings and loans institutions that would have to be put into receivership if their condition deteriorated to a small degree from the bill’s qualifying requirements. The provisions are as follows:
Amendments to the Federal Deposit Insurance Act (which regulates the Federal Deposit Insurance Corporation, FDIC), the National Housing Act (which regulates the Federal Home Loan Bank Board, FHLBB), and the Federal Credit Union Act (the National Credit Union Administration Board, NCUAB) so that the regulated bodies can guarantee the net worth of qualified insured institutions. This “poked a hole” in the economic damn.
Prior to this Congress passed The Net Worth Guarantee Act passes the House of Representatives on May 20, 1982, with amendments that extend the coverage to qualifying State-chartered commercial banks, and qualifying national banks whether or not they are members of the FDIC; that added investment in residential housing co-operative stock and mortgages on multifamily rental projects to the qualifying activities for sustaining the guarantee; that altered the exit path from the program; that add compliance with community credit provision requirements under the Community Reinvestment Act of 1977; that make the Treasury senior to holders of existing subordinated debt of any guaranteed bank that later winds up in receivership; and that clearly give the sunset date as September 30, 1984. [Library of Congress, 5/14/2008; Library of Congress
The Garn-St. Germain Depository Institutions Act of 1982 (Pub.L. 97-320, H.R. 6267, enacted 1982-10-15) is an Act of Congress, that deregulated the Savings and Loan industry. This Act turned out to be one of many contributing factors that led to the Savings and Loan crisis of the late 1980s.
The bill, whose full title was “An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans,” was a Reagan Administration initiative.
The bill is named after its sponsors, Congressman Fernand St. Germain, Democrat of Rhode Island, and Senator Jake Garn, Republican of Utah. The bill had broad support in Congress, with co-sponsors including Charles Schumer and Steny Hoyer. The bill passed overwhelmingly, by a margin of 272-91 in the House.Source: Wikapedia
But the real damn buster was the 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 designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.
The Act was intended to reduce discriminatory credit practices against such neighborhoods, a practice known as ‘redlining’. 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.
To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions.Thus our government put quotas on lending institutions the same as they did in all forms of big business where government mandates that a percentage of managers, directors, VP and Supervisors go to ethnic classes or else!
And do not tell me it was not so, because I was a person who saw it at work first hand!
Now the Democrats have managed to convince a dumbed down public that it was the Repupulicans, particularly Presidedent Bush, who caused the financil mess, and Obama will bring his version of Socialism to Washington.
But wait, the “soft bigotry” of lowered expectations has already begun. It will continue like a tribal drum beat throughout his Presidency. The “GD” Republicans caused such a mess it will take at least eight, maybe more, years to CHANGE the mess!
Talk about the fox gaurding the hen house or the camel poking his nose under the tent flap! The principle beneficiary of the Freddie largesse, Senator Dodd will still be in the position as Chairman of the Senate Finance Committee! God help Us!