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Edmund Onward James

Joined: 04 Jun 2009
Posts: 1317
Reputation: 55
votes: 2

PostPosted: Mon Oct 31, 2011 5:10 pm    Post subject: Smoking Gun for American Financial Crisis that spread Reply with quote

There is proof who was responsible and why.

Smoking-Gun Document Ties Policy To Housing Crisis

Smoking-Gun Document Ties Policy To Housing Crisis

President Obama says the Occupy Wall Street protests show a "broad-based frustration" among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis.

"You're seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he complained earlier this month.

But what if government encouraged, even invented, those "abusive practices"?

Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rate, and launched what would prove the costliest social crusade in U.S. history.

At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

Bubble? Regulators Blew It

The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

"The agencies will not tolerate lending discrimination in any form," the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agen cies as a fair-lending enforcement "tool," and would apply to "all lenders" — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial "discrimination." But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower's credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants' net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

For the first time, Washington's bank regulators put racial lending at the top of their checklist. Banks that failed to throw open their lending windows to credit-poor minorities were denied expansion plans by the Fed in an era of frenzied financial mergers and acquisitions. HUD threatened to deny them access to Fannie Mae and Freddie Mac, which it controlled. And the Justice Department sued them for lending discrimination and branded them as racists in the press.

"HUD is authorized to direct Fannie Mae and Freddie Mac to undertake various remedial actions, including suspension, probation, reprimand or settlement, against lenders found to have engaged in discriminatory lending practices," the official policy statement warned.

The regulatory missive, which had the effect of law, advised lenders to bend "customary" underwriting standards for minority homebuyers with poor credit.

"Applying different lending standards to applicants who are members of a protected class is permissible," it said. "In addition, providing different treatment to applicants to address past discrimination would be permissible."

To that end, lenders were directed to "make changes in marketing strategy or loan products to better serve minority segments of the market." They were also advised to "change commission structures" to encourage brokers and loan officers to "lend in minority and low-income neighborhoods" — a practice Countrywide Financial, the poster boy of the subprime scandal, perfected. The government now condemns the practice it once encouraged as "predatory."

FDIC warned banks that even unintentional discrimination was against the law, and that they should be proactive in making "multicultural" loans. "An ounce of prevention is worth a pound of cure," the agency said in a separate advisory.

Confronted with the combined force of 10 federal regulators, lenders naturally toed the line, and were soon aggressively marketing subprime mortgages in urban areas. The marching orders threw such a scare into the industry that the American Bankers Association issued a "fair-lending tool kit" to every member. The Mortgage Bankers Association of America signed a "fair-lending" contract with HUD. So did Countrywide.

HUD also pushed Fannie and Freddie, which in effect set industry underwriting standards, to buy subprime mortgages, freeing lenders to originate even more high-risk loans.

"Lenders should ensure that their loan processors and underwriters are aware of the provisions of the secondary market guidelines that provide various alternative and flexible means by which applicants may demonstrate their ability and willingness to repay their loans," the policy statement decreed.

"Fannie Mae and Freddie Mac not infrequently purchase mortgages exceeding the suggested ratios" of monthly housing expense to income (28%) and total obligations to income (36%).

It warned lenders who rejected minority applicants with high debt ratios and low credit scores to "be prepared" to prove to federal regulators and prosecutors they weren't racist. "The Department of Justice is authorized to use the full range of its enforcement authority."

It took a little more than a decade for the negative effects of the assault on prudent lending to be felt. By 2006, the shaky subprime mortgages began to default. In 2008, the bubble exploded.

Clinton's task force survived the Bush administration, during which it produced fair-lending brochures in Spanish for immigrant home-loan applicants.

And it's still alive today. Obama is building on the fair-lending infrastructure Clinton put in place.

As IBD first reported, Attorney General Eric Holder has launched a witch hunt vs. "racist" banks.

"It's a more aggressive fair-lending enforcement approach now," said Washington lawyer Andrew Sandler of Buckley Sandler LLP in a recent interview. "It is well beyond anything we saw during the Clinton administration."

Tom Perez, assistant attorney general for civil rights, recently testified that his division "continues to participate in the federal Interagency Fair Lending Task Force." And he and the task force are working with the newly created Consumer Financial Protection Bureau to "enhance fair-lending enforcement."

The fair-lending task force's original policy paper undercuts the notion the financial crisis was all about banker "greed," though it certainly played a role after the fact. Rather, it offers compelling evidence that the crisis evolved chiefly from government mandates and threats to increase lending to applicants who could not afford them.
Edmund Onward James

Joined: 04 Jun 2009
Posts: 1317
Reputation: 55
votes: 2

PostPosted: Tue Nov 01, 2011 10:08 am    Post subject: Reply with quote

It started with FDR, but then Carter lowered the bar with his Community Re-Investment Act, then naughty Bad Boy Bill, who enjoys fine cigars with a certain flavour, lowered it to the floor.

McCain should have done his economic homework. Too bad he wasn't aware, or perhaps he was and his strategists didn't want to open the can of worms.

But I do hope Herman, Mitt, or even Rick jump on this, because Obama's regime must be fully aware of this since Attorney General Holder is investigating banks, etc., about "racism". The anointed and his czars are trying to shift the egregious threat by government agencies to banks and mortgage brokers from 1994 to now.
Edmund Onward James

Joined: 04 Jun 2009
Posts: 1317
Reputation: 55
votes: 2

PostPosted: Sun Nov 06, 2011 1:51 pm    Post subject: Reply with quote

Lorrie Goldstein of the Toronto Sun recently asked me whose economic fault I thought it was. I said Democrats and explained why, with facts. However, I wasn't pleased with the Bush's financial abilities, either. Of course, there were wars going on; nonetheless, they owned businesses and were connected.

Goldstein blames the banks and wants to see some guys get charged and do time. But how about the government dipshits who forced these banks to hand out mortgages to anybody?

Crony capitalism

How Wall Street undermined free markets and the rule of law

Conservative columnist Michael Taube recently criticized me and other fiscal conservatives for expressing some sympathy for the Occupy Wall St. movement and its Toronto offshoot.

He wrote in the Ottawa Citizen he was puzzled why Finance Minister Jim Flaherty, Bank of Canada Governor Mark Carney (now heading the G20 Financial Stability Fund), the Fraser Institute’s Mark Milke and Conrad Black, have not been totally dismissive of the “Occupy” protesters.

Speaking for myself, here’s why:

I support the protesters for correctly identifying Wall St. as the scene of a massive heist of global wealth, jobs and homes that started with the subprime mortgage securities crisis of 2008 and continues to this day.

As a result, tens of millions of people world-wide have lost trillions of dollars in their pensions and life savings — including in Canada — along with their jobs and homes.

Most are hard-working, law-abiding, citizens, who pay their taxes, never signed for mortgages they couldn’t afford (given they didn’t expect to lose their jobs in a global economic meltdown) and have never demonstrated in the streets or occupied a park.

As a fiscal conservative, I believe in free markets and the rule of law, not fraud markets and crony capitalism, in which profits are privatized and losses socialized.

That’s what happened in the 2008 global economic crash, where the worst damage wasn’t caused by the subprime scandal itself, but by the global credit freeze it led to because banks no longer trusted each other’s assets.

That not one senior Wall St. executive has been charged, let alone imprisoned, as a result of their companies’ misrepresenting the true nature of the subprime mortgage securities they peddled to institutional investors globally is a disgrace.

The fact they bet against their own investors without telling them — and indeed, privately mocked them — is a disgrace.

The fact credit rating agencies in the pay of Wall St. graded junk subprime mortgage securities as Triple A safe investments, is a disgrace.

The fact most Republican and Democratic politicians don’t want any criminal trials arising out of this scandal is a disgrace.

The reason they don’t want them is that would shine a light on the billions of dollars they accepted in campaign contributions and other favours from the financial services sector, in return for gutting the regulatory safeguards on that industry which led to the ’08 crash.

The fact these banks were bailed out of the financial destruction they caused with hundreds of billions of taxpayers’ dollars is a disgrace.

The fact they are being allowed to walk away from what they did by paying insignificant corporate fines (compared to profits), negotiated by an emasculated U.S. Securities and Exchange Commission, with no one being held personally responsible for what happened, or even having to admit wrongdoing — is a disgrace.

Worst of all, because the Wall St. banks that survived ’08 are now bigger than ever — so big the government decreed they were “too big to fail” via the bailout — there is every reason to believe they will do what they did again.

Not only have they escaped any “moral hazard” for their actions, they had their huge bonuses paid for by taxpayers.

The fact Democrats and Republicans are blaming each other — Democrats by accusing Republicans of caving into Wall St., Republicans by accusing Democrats of forcing banks to extend mortgages to people who couldn’t pay them back — is another disgrace.

The reality is both parties and their presidential candidates, happily allowed themselves to be bought by the U.S. financial services sector in the years leading up to the crash.

The reality is Fannie Mae and Freddie Mac — the two U.S. government-sponsored mortgage underwriting agencies — walked away with paying minor fines (relative to their assets) for massive accounting manipulation.

And the fact is fraud is fraud, whether it’s done by a welfare queen or a bank. But when it’s done by a bank, it does a lot more damage.

Yes, the Occupy protesters may be naďve, misguided, troublemaking, freeloading, commies and hippies, in cahoots with professional left-wing agitators and public sector unions.

I certainly don’t want them occupying a public park in downtown Toronto all winter.

But they didn’t cause the global economic devastation we’ve been experiencing since 08.

And the real disgrace is the people who did, got away with it.

Joined: 18 Feb 2010
Posts: 6
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PostPosted: Thu May 24, 2012 4:49 am    Post subject: Reply with quote

Despite recession's hard hit, i am still glad that Canada's mortgage industry is better than in US.
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Smoking Gun for American Financial Crisis that spread

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