Home subscribe manage Las Vegas Review-Journal
  Jobs Cars Homes Shopping Travel Weddings Golf Best of Las Vegas Photo   Search:

RECENT EDITIONS
Wed Thu Fri Sat Sun Mon Tue

Opinion
Oct. 01, 2008
Copyright © Las Vegas Review-Journal

EDITORIAL: Risky loans

Washington encouraged banks to overextend themselves

Who's to blame for the current meltdown of the financial sector, caused by the dependence of so many corporate balance sheets on defaulting home mortgages?

Since for the past eight years the White House has been occupied by a Republican -- and one with low approval ratings, at that -- many may be inclined to agree with Democratic House Speaker Nancy Pelosi that the fault lies with "failed Republican do-nothing policies."

Newsvine Digg Fark Technorati reddit StumbleUpon del.icio.us Slashdot Propeller Mixx Furl Twitter MySpace Facebook Google Bookmarks Yahoo! Bookmarks Windows Live Favorites Ask MyStuff myAOL Favorites

Most Popular Stories
  • LETTERS: Professor needs to get with the program
  • LETTERS: Washington loves rewarding failure
  • FROM OUR READERS: We can't do worse than country's current leadership
  • LETTERS: Trickle-down economics is dead
  • EDITORIAL: Tip jar
  • VIN SUPRYNOWICZ: Shall we save the economy ... or the government?
  • LETTERS: Don't expect district to cut waste
  • EDITORIAL: Sending the right message
  • EDITORIAL: A tiny bit of good news?
  • EDITORIAL: 'A cautionary tale'



    • In fact, the Community Reinvestment Act of 1977 was enacted by a Democratic Congress and signed by Democrat Jimmy Carter, and it was under Democrat Bill Clinton in 1995 that the real regulatory pressure began to build on America's banks to meet regulatory quotas for loan-making to unqualified buyers in low-income communities -- well-meaning social policy enforced by requiring bankers to take the very billion-dollar risks that have now come home to roost.

    There were plenty of warnings that too much of this bad debt was piling up -- especially at mortgage giants Fannie Mae and Freddie Mac.

    But The Wall Street Journal reports that in 2000, when Rep. Richard Baker proposed Fannie Mae and Freddie Mac reform, powerful Democrat Barney Frank dismissed it as unnecessary. The New York Times reports that a Bush administration proposal in 2003 to reform Fannie Mae and Freddie Mac found Rep. Frank insisting, "I do not believe that we're facing any kind of crisis."

    Warned in April 2004 that Fannie Mae and Freddie Mac could collapse, Rep. Barney Frank replied, "I think Wall Street will get over it."

    Over in the Senate, the biggest recipients of financial largess from employees and political action committees of Fannie Mae and Freddie Mac over their careers have been not President Bush and Sen. John McCain, but Democratic Senate Banking Committee Chairman Chris Dodd ($165,000) -- whio also worked to quash reform -- and Barack Obama ($125,000), followed by John Kerry and Hillary Clinton.

    Who are the friends of the fat-cat bankers?

    (Note last week's original bailout plan included tens of billions of dollars for nonprofit "affordable housing advocacy" outfits, including Sen. Obama's longtime patron, Acorn.)

    Yet at the same time Sen. Obama was pocketing money from these institutions -- and retaining their former chiefs as his advisiors -- some Republicans, including Sen. McCain, were fighting to reform them.

    "One of the major government privileges granted to GSEs is a line of credit with the United States Treasury," Republican Rep. Ron Paul of Texas warned the House Financial Services Committee in September 2003. "According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty ... distorts the allocation of capital."

    Sen. McCain was another leading advocate of reform of the "Government-Sponsored Enterprises" (GSEs) -- years ago.

    "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac ..." Sen. McCain said on the Senate floor on May 25, 2006. "The GSEs need to be reformed without delay."

    That was three years ago. But the well-paid Democrats refused to listen, back when there was still time. And so the Federal Housing Enterprise Regulatory Reform Act of 2005 -- co-sponsored by Sen. McCain -- went nowhere.

    Nevada Rep. Jon Porter has plenty of justification for his call to probe these circircumstances -- including a search for possible criminal wrongdoing.

    Yes, many of Sen. McCain's fellow Republicans -- and many on Wall Street looking to turn a quick buck -- share the blame. They've controlled either the White House or Congress or both for much of the past 14 years. Even faced with Democratic foot-dragging, why didn't Republicans act to repeal the mandates that encouraged and even required these risky loans?

    For that matter, even today -- with near unanimity that the nation faces a "crisis" -- why hasn't Congress done the equivalent of plugging the leaks before starting to bail the boat? Why haven't they repealed the Community Reinvestment Act of 1977, along with all the ancillary banking regulations piled on under President Clinton in the late 1990s, which not only allowed but actually required banks to demonstrate to government regulators that they'd extended credit to a "sufficient" number of potentially risky borrowers, even if that meant allowing those borrowers to use their welfare and unemployment checks to qualify for a loan?



    Leave Your Comment 48 Reader Comments
    Terms & Conditions
    The following comments are provided by readers and are the sole responsiblity of the authors. The reviewjournal.com does not review comments before publication nor guarantee their accuracy. By publishing a comment here you agree to abide by the comment policy. If you see a comment that violates the policy, please notify the web editor.

    Some comments may not display immediately due to an automatic filter. These comments will be reviewed within 48 hours. Please do not submit a comment more than once.
    Current Word Count:

    Whateverusaydear wrote on October 01, 2008 10:00 PM: So (supposedly) it's the fault of the 1977 act.

    So the Vegas real estate crisis had nothing to do with speculators around 2003 artificially inflating the prices of homes in the valley.

    The crisis supposedly has nothing to do with the "liar loans" and the fancy interest-only ARMs for the overpriced homes the borrowers took out to pay for more house than they could afford. Nothing to do with brokers wanting to make those high commissions and lenders eager to liar loan to people who couldn't afford it.

    PLENTY of people were denied loans in the 1990s (and before). If RACE was such a magical factor, why didn't EVERYONE of the race du jour get approved automatically? They DIDN'T. Or isn't it known that plenty of people did NOT qualify due to financial factors, or given unfavorable rates? Can a minority automatically get on now?

    Weren't people in the 2000s buying frenzy so sure that if money became a problem, they could just refinance or sell anytime since home values in Vegas were always going up? Didn't lending institutions and brokers tell the borrowers the same (when house hunting with others, that was common advice from brokers).

    How many people then used their "wealth" to make imprudent purchases and/or paid off credit cards because of tax decuctibility, only to run up the debts on credit again?

    The bubble burst; how many people couldn't refinance their ARMs or sell (except for short sales), because the homes' inflated prices' loan balance was more than what the home was worth?

    After the bubble burst, STILL building new homes/condos?

    Don't forget: "NOW IS THE BEST TIME TO BUY".

    Foreclosures aren't just in "minority" neighborhoods - plenty of it everywhere here and not from just minorities.

    Who benefits from the GREED, and from the bailout? Who pays for it?


    2zero wrote on October 01, 2008 09:27 PM: If the 1977 law was so bad; why didn't Bush Jr. fix it when he had control of the House & Senate?

    Why didn't his dad fix it, why didn't Regan fix it?

    Proverbs 28:8


    floyd wrote on October 01, 2008 08:53 PM: amen, patrick.


    patrick wrote on October 01, 2008 08:10 PM: Vic I got a question for you; point out to me language within that Act that REQUIRED a lender to lend money to anyone?

    Guess I got another question for you; tell me what percentage of people that received loans under the Act either committed fraud in obtaining their loan, or have defaulted on their loan.

    One more, so long as we're here, what is the percentage of loans that were granted under the Act that are in default, relative to the number of loans in the country that are currently in default?

    Vic, then, look up the action taken by bush's Treasury Secretary Paulson, in or about 2003, when the five largest investment banking firms (Lehman, Bear Sterns, Merill Lynch, Goldman Sacs, and Morgan Stanley) went to him and requested that he reduced the RESERVE requirements imposed on them from $40 for every $100 of reserves to $1 for every $100 of reserves.

    Find out why that happened, and why subsequently it was those 5 firms that started this entire crisis, and you will know wherefrom this all arose.

    Course, you're clearly stuck in the 70's, and I'm just surprised you didn't blame this on Jessie Jackson.

    LOL


    Vegas Vic wrote on October 01, 2008 08:01 PM: Patrick,
    Did you NOT read who signed the Community Reinvestment Act of 1977? Did you NOT read what party was in control? Obviously not seeing as how you continue to put the blame on only the Republicans.


    Jim shoes wrote on October 01, 2008 07:00 PM: People, it doesn't matter now who did what, what matters is how are they going to handle this.


    CRA - website quote wrote on October 01, 2008 06:48 PM: Dear Floyd, I had done my "homework" and now present it to you for enlightenment. Be sure to look up the word "trillion" in the dictionary. The "red" in redlining is a red-istribution of wealth under CRA.
    ------------------------

    The Community Reinvestment Act (CRA) was established by Congress in 1977. The Act requires that deposit-taking financial institutions offer equal access to lending, investment and services to all those in an institution's geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.

    Before the CRA, many bankers excluded low-income neighborhoods and people of color [i.e., black] from their lending products, investments, and financial services - a practice known as "redlining". Community activists coined the term when they discovered that the failure of banks to make loans in some low-income neighborhoods was so geographically distinct, that it was easy to draw red lines on maps to delineate the practices.

    In the 1970s, activists in Chicago and across the country brought strong pressure on banks to lend equitably to all those in their communities. Since its passage, the CRA has been used across the United States to win tens of billions of dollars in new lending, investments, and services for communities. The National Community Reinvestment Coalition tracks more than $1 trillion dollars in community reinvestment pledges nationally. These pledges are explicit investments in equitable development goals, and finance many tools in this toolkit.

    Source: http://www.policylink.org/EDTK/CRA/


    U.S. Debt continued wrote on October 01, 2008 06:15 PM: I'd also counterclaim that China (or the Chinese) does not deserve to be repaid a substantial portion of any debt we have with them due to decades of counterfetiing of U.S. products that has cost the U.S. Trillions, and probably continues to this day! They essentially stole our name (made in USA). In the '80s, I recall reading news articles about this major problem.


    U.S. Debt??? What Debt? lol wrote on October 01, 2008 06:11 PM: Wow! I just now realized how smart we Americans are! We figured out that China cannot foreclose on us! LMAO. In fact, here in Vegas, we are masters at this foreclosure game. Bring it on China!

    The only problem is we will become less creditworthy internationally?


    RHG wrote on October 01, 2008 05:40 PM: Being a Democrat means never having to say you're sorry.


    Read All Comments