“If we must have an enemy at the head of Government, let it be one whom we can oppose, and for whom we are not responsible, who will not involve our party in the disgrace of his foolish and bad measures.”
- Alexander Hamilton. Spiritual father of #NeverTrump
Also in my opinion, and I am willing to hear dissenting opinions, if there is a corporation be it a bank or any other kind of company that is so large that if it were to fail it would have a national economic impact to require government money to avoid further economic disaster, then it needs to be broken up now. The Glass-Steagall Act would have a double effect of separating personal savings from investment banking as well as breaking up banks that may be too big to fail based on their sheer size.
Yeah....government is more of a solution...but they created this problem.
Investment banks were hurting, meaning they werent giving credit. Commercial banks were beginning to hurt but were fine with federal deposit backing. The problem was the Fed could not help the investment banks, they had no legal method. So they put commercial and investment banks together through mergers or aquisitions and then gave them capital under federal deposit rules. The government endorsed and encouraged these mergers even if the companies did not want them because in some cases there were some toxic assets on the books---thats part of what the capital was meant to clear.
So now the banks that were too big to fail are even BIGGER than they were before. The lack of competition is not healthy, too few players are controlling too much of the pie. I suspect the only way back out is to bring back Glass Steagel, stiffen up CDS and Derivative legislation (one of the few regulatory actions I favor), and maybe consider forbidding co-mingling depository fed funds with investment sectors of that same bank---sending the signal that the fed wont cover investment losses.
Too Big to Fail (Cue dramatic music) Da da duuuuuhhhhh....
Start with Carter's Community Reinvestment Act. Prior to 1989 it was just a law that tried to force banks into compliance but had no real enforcement powers. Enter in the 1989 Bush 41 Act ( Financial Institution Reform Recovery and Enforcement Act ) that increased regulatory power on banks by reinforcing the CRA.
FDIC: FDIC Law, Regulations, Related Acts - Miscellaneous Statutes and Regulations
"It required the agencies to issue Community Reinvestment Act (CRA) ratings publicly and do written performance evaluations using facts and data to support the agencies' conclusions. It also required a four-tiered CRA examination rating system with performance levels of "Outstanding," "Satisfactory," "Needs to Improve," or "Substantial Noncompliance." These rules increased pressure on banks to make mortgage home loans to inner-city and rural areas"
In 1992 The Boston Federal Reserve released a Compliance Manual that was distributed the lenders. It was called " Closing the Gap " A Guide to Equal Opportunity Lending " In 1992 The Boston Federal Reserve released a Compliance Manual that was distributed the lenders.
" Even the most determined lending institution will have difficulty cultivating business from minority customers if its under writing standards contain arbitrary or unreasonable measures of creditworthiness.
Consistency in evaluating loan applications is also critical to ensuring fair treatment. Since man mortgage applicants who are approved do not meet every underwriting guideline, lending policies should have mechanisms that define and monitor the use of compensating factors to ensure that they are applied consistently, without regard to race or ethnicity.
The Board of Directors should establish a policy to detect and eliminate biases in underwriting standards and practices. As part of this policy, management should be directed to review existing underwriting standards and practices to ensure that they are valid predictors of risk.
Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower–income, and nontraditional
consumers. The Board should require management to define acceptable compensating factors and to monitor their use by loan production staff.
The Board may also wish to establish a written policy on equal opportunity lending, in which its underwriting guidelines are explained.
This policy can describe the institution’s commitment to the community and to minority and lower–income consumers and explain how its products can meet home buyers’ needs.
Management should review both underwriting standards and practices.(See also the sections on Second Review Policies and Testing Fairness in Lending Practices.)
Underwriting Standards "
The study was critiqued as poorly written and researched with questionable data, but ultimately was the initiative for new laws and regulations created in the 90's that forced the lowering of underwriter standards on Home Mortgage loans and on loans the GSE's could purchase. It also warned of possible civil legal action if these new standards were not followed.
In 1992 an Affordable Housing Mandate was put on Fannie and Freddie ( in Title XIII of the Housing and Community Development Act of 1992 ) which was enforced through HUD ( Housing Urban Development ) regulations by placing them under a Quota System which started at 30% , then 40% and 50% under Clinton and then 55% under Bush. That's out of their total share's of Mortgage Debt Purchased an increasing mandated percentage HAD to be low quality mortgages ( LMI ) and in 2000 the HUD director Andrew Cuomo pledged 2 trillion dollars to of "affordable mortgages".
The 1994 National Home ownership Strategy, published at the request of President Clinton.......
- HUD, "Partners in the American Dream", May 1995
“In 1994, at the President’s request, the U.S. Department of Housing and Urban Development (HUD) began work to develop a National Homeownership Strategy with the goal of lifting the overall homeownership rate to 67.5 percent by the end of the year 2000. While the most tangible goal of the National Homeownership Strategy was to raise the overall homeownership rate, in presenting the strategy HUD pointed explicitly to declines in homeownership rates among low-income, young, and minority households as motivation for these efforts.” - U.S. Department of Housing and Urban Development Office of Policy Development and Research website
"At the request of President Clinton, HUD is working with dozens of national leaders in government and the housing industry to implement the National Homeownership Strategy, an unprecedented public-private partnership to increase homeownership to a record-high level over the next 6 years.” - Urban Policy Brief Number 2, August 1995
“Federal institutions, policies, and programs alone cannot meet President Clinton's goal of record-high levels of homeownership within the next 6 years. HUD has forged a nationwide partnership that will draw on the resources and creativity of lenders, builders, real estate professionals, community-based nonprofit organizations, consumer groups, State and local governments and housing finance agencies, and many others in a cooperative, multifaceted campaign to create ownership opportunities” - The National Homeownership Strategy
Some of the strategy's outline in the Home OwnerShip Strategy..
Action 11: Removing Barriers to Mortgage Financing for Starter Homes
Action 29: Alternative Approaches to Homebuying Transactions
Action 35: Home Mortgage Loan-to-Value Flexibility
Action 36: Subsidies to Reduce Downpayment and Mortgage Costs
Action 44: Flexible Mortgage Underwriting Criteria
Action 45: Public-Private Leveraging for Affordable Home Financing
From a 2000 Fannie Mae Foundation Report
"Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …
When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs."
HUD in 2004:
"Over the past ten years, there has been a ‘revolution in affordable lending’ that has extended home ownership opportunities to historically underserved households. Fannie Mae and Freddie Mac have been a substantial part of this ‘revolution in affordable lending’. During the mid-to-late 1990s, they added flexibility to their underwriting guidelines, introduced new low-downpayment products, and worked to expand the use of automated underwriting in evaluating the creditworthiness of loan applicants. HMDA data suggest that the industry and GSE initiatives are increasing the flow of credit to underserved borrowers. Between 1993 and 2003, conventional loans to low income and minority families increased at much faster rates than loans to upper-income and non-minority families."
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 - Wikipedia, the free encyclopedia
In 1994 the Riegle-Neal Interstate Banking and Branching Efficiency Act tied a Banks CRA ratings into whether or not a Bank could acquire new acquisition's.
" If no one among us is capable of governing himself, then who among us has the capacity to govern someone else ? "
The Bush Blame and the Bank Blame is just the left partisan rhetoric to pull all the focus off of their party's massive documented influence..
2003 NY Times article.....
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates. "
Key Democrats rejected..
”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.”
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.
Clinton from 1993 to 1998 replaced the Top Executive's at Fannie and Freddie, including Franklin Raines who for years misreported Fannie's earnings to maintain his target numbers. His bonus was based off of his target numbers....
The House Financial Services Committee began debate on September 11, 2003 and held multiple hearings over the next several weeks. In supporting the bills, Republicans focused on GSE’s potential impact on the broader financial system. Democrats focused solely on the mortgage lending targets, stating there was no risk to the broader financial system because the federal government would bail out the GSEs if necessary.
Sen. Charles Schumer (D, NY): “And my worry is that we’re using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie’s mission.”
Rep. Maxine Waters (D-CA): “nearly a dozen hearings where, frankly, we were trying to fix something that wasn’t broke… In fact, the GSEs (Fannie, Freddie) have exceeded their housing goals. What we need to do today is to focus on the regulator, and this must be done in a manner so as not to impede their affordable housing mission – a mission that has seen innovation flourish, from desktop underwriting (no formal analysis) to 100% loans (no collateral).”
Rep. Maxine Waters (D, CA), speaking to Housing and Urban Development Secretary Mel Martinez: “Secretary Martinez, if it ain’t broke, why do you want to fix it? Have the GSEs ever missed their housing goals?”
On March 31, 2004, the day before the Senate Banking Committee was scheduled to begin debating GSE regulations, Franklin Raines had Fannie Mae run the following advertisement on national television. Featuring a worried looking Hispanic couple, a man said, “Uh-oh.”
Man: “It looks like Congress is talking about new regulations for Fannie Mae.”
Woman: “Will that keep us from getting that lower mortgage rate?”
Man: “Some economists say rates may go up.”
Woman: “But that could mean we won’t be able to afford the new house.
Man: “I know.”
Rep. Barney Frank (D-MA): “I don’t want the same kind of focus on safety and soundness that we have in OCC (Office of the Comptroller of the Currency) and OTS (Office of Thrift Supervision). I want to load the dice a little bit more in this situation towards subsidized housing.”
Rep. Barney Frank (D-MA): “I think we see entities that are fundamentally sound financially and withstand some of the disastrous scenarios. And even if there were a problem, the federal government doesn’t bail them out.”
Rep. Gregory Meeks (D-NY): To OFHEO head, Armando Falcon, “The question that represents is the confidence that your agency has with regard to regulating these GSEs… Why should I have confidence; why should anyone have confidence in you as a regulator at this point?”
Rep. Gregory Meeks (D-NY): “I’m just pissed of at OFHEO (the regulator), because if it wasn’t for you I don’t think that we’d be here in the first place…you’ve given them an excuse to try to have this forum so that we can talk about it and maybe change the direction and the mission of what the GSEs had, which they’ve done a tremendous job.
Barney Frank (D-MA): “I worry about increasing the capital requirements…I’d like to get Fannie and Freddie more deeply into helping low income housing and possibly moving into something that’s more explicitly a subsidy (taxpayer money used as principle in subprime mortgages). My concern is that this would not what would be a regulator’s or Treasury’s idea of what would be the best way of promoting safety and soundness… “
Barney Frank (D-MA) even went so far as to suggest the issue of Fannie Mae regulation should rest in the hands of Fannie’s CEO:
Barney Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated? Mr. Raines?
Franklin Raines: No, sir.
Barney Frank: Mr. Gould?
George Gould: No, sir. . . .
Barney Frank: OK. Then I am not entirely sure why we are here. . . .
From a 1999 NY Times Article....
“Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.”
A HUD release after raising their Quota to 50% in 2000
" Because the GSEs have a funding advantage over other market participants, they have the ability to under price their competitors and increase their market share. This advantage, as has been the case in the prime market, could allow the GSEs to eventually play a significant role in the subprime market. As the GSEs become more comfortable with subprime lending, the line between what today is considered a subprime loan versus a prime loan will likely deteriorate, making expansion by the GSEs look more like an increase in the prime market. Since . . . one could define a prime loan as one that the GSEs will purchase, the difference between the prime and subprime markets will become less clear. This melding of markets could occur even if many of the underlying characteristics of subprime borrowers and the market's (i.e., non-GSE participants) evaluation of the risks posed by these borrowers remain unchanged."
A HUD release from 2004...
“Over the past ten years, there has been a ‘revolution in affordable lending’ that has extended homeownership opportunities to historically underserved households. Fannie Mae and Freddie Mac have been a substantial part of this ‘revolution in affordable lending.' During the mid-to-late 1990s, they added flexibility to their underwriting guidelines, introduced new low-downpayment products, and worked to expand the use of automated underwriting in evaluating the creditworthiness of loan applicants. HMDA data suggest that the industry and GSE initiatives are increasing the flow of credit to underserved borrowers. Between 1993 and 2003, conventional loans to low income and minority families increased at much faster rates than loans to upper-income and non-minority families."
Republicans in 2005 and their attempt to gain control of the out of control GSE's working under a HUD mandate..
Sponsor Chuck Hagel
Federal Housing Enterprise Regulatory Reform Act of 2005 - Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish:
(1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank
Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac); and
(2) the Federal Housing Enterprise Board. Sets forth operating, administrative, and regulatory provisions of the Agency, including provisions respecting:
(1) assessment authority;
(2) authority to limit nonmission-related assets;
(3) minimum and critical capital levels;
(4) risk-based capital test;
(5) capital classifications and undercapitalized enterprises;
(6) enforcement actions and penalties;
(7) golden parachutes; and
Amends the Federal Home Loan Bank Act to establish the Federal Home Loan Bank Finance Corporation. Transfers the functions of the Office of Finance of the Federal Home Loan Banks to such Corporation. Excludes the Federal Home Loan Banks from certain securities reporting requirements.
Abolishes the Federal Housing Finance Board.
Writen by the House Republican Conference "
It lacked the Senate votes and needed 5 Democrats to join the 55 Republican Senators voting for it. No Democrat crossed over..
" If no one among us is capable of governing himself, then who among us has the capacity to govern someone else ? "