These notes are from an Interesting website. It Shows a Timeline of the Housing and Banking Meltdown. There is more times in between what I highlighted here. This website would not lie or feed you a line of B.S. on this topic. If I read it right a lot of this is due to Liberals trying to put everyone in a House even if they could not afford it. The warning signs were there and These execs took huge bonuses as this was happening!If you get a chance read the whole thing at the Link. http://www.freedomworks.org/crisis
When I hear Obama saying we don't want to go back to the same failed policies, If he is talking about this He is really full of it to think that it ws Bush's fault!
1965 – The Department of Housing and Urban Development (HUD) is created.
HUD and FHA insure loans for borrowers with insufficient credit, thereby driving down interest rates for low-income borrowers and artificially increasing the amount of housing produced and sold.
1968 – Fannie Mae separates from the FHA,
becoming a Government Sponsored Enterprise (GSE). Making Fannie Mae a GSE enables Lyndon Johnson, worried about the budget deficits from his "Great Society" policies, to remove Fannie Mae from government balance sheets, while continuing to expose taxpayers to its risks.1
1970 – The federal government creates another GSE, The Federal Home Loan Corporation, now known as Freddie Mac,
to serve the same purpose as Fannie Mae – to expand the secondary market for mortgages in the United States. The two companies do so by purchasing mortgages from banks. They then compile the purchased mortgages into securities, guarantee them, and sell them to investors. By paying banks money for mortgages, they bring more liquidity to the banks, which are then able to loan the money to another applicant. Both GSEs are implicitly backed by the government.2
Because the GSEs are chartered by the government, investors believe that the government will not allow them to default on loans. As a result, GSEs are able to borrow at lower rates than private companies, giving them a competitive advantage over fully private mortgage-backed security vendors.3 They crowd out the competition and ultimately hold over 50% of the over $7 trillion mortgage market in the United States in 2003.4
The graph below shows Fannie Mae and Freddie Mac’s market share of mortgage debt as they crowd out commercial bank and saving institutions holdings of mortgage debt. 5
1977 – The Community Reinvestment Act (CRA) becomes law
and requires banks to loan to the areas where the banks are located, regardless of the eligibility of potential borrowers. To enforce the statute, government agencies take the information they gather on the banks into consideration when deciding to approve applications for new bank branches or for mergers or acquisitions.
1978 – President Jimmy Carter
signs the Humphrey-Hawkins Full Employment Act into law modifying the Employment Act of 1946. It gives the government the power to use economic policy to manipulate fluctuations in the business cycle through the Federal Reserve and the Executive beyond that initially granted by the Constitution. 40
1989 – The CRA is modified
by the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) to increase pressure on banks to make CRA loans – loans that banks deem too risky to give, but which they must to meet politically determined CRA requirements.
1992 The Clinton Presidency Begins
Government weakens bank lending standards. A now-discredited study published by the Boston Federal Reserve enables Government Sponsored Enterprises Fannie Mae and Freddie Mac to accept lower underwriting standards for mortgages they are seeking to purchase, so they may expand their portfolios, enable private banks to make more loans and influence the housing sector.78
At the same time,
Congress weakens Fannie and Freddie standards. The Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) is passed into law. This act mandates that the GSEs increase their acquisition of bank loans made to risky and lower income borrowers. GSE Fannie Mae announces a trillion dollar commitment. Banks know they can meet CRA requirements by giving these loans, and that they will be able to pass the risk of such loans on to the implicitly taxpayer-backed Government Sponsored Enterprises, so they make lower quality loans.
Also in 1992,
Countrywide, Wachovia, and others pushed by Federal Reserve publications and other regulations begin loaning to clients with no or bad credit. Lenders are able to pass on the added risk of these loans by selling them to the GSEs, who guarantee, repackage, and sell them as securities with the implicit backing of the government in the case of default. 9
1995 – Regulatory changes to the CRA make all banks' CRA ratings available to pressure groups.
When a bank plans to merge or start a new branch, they are evaluated according to the CRA. Economist Tom DiLorenzo writes, “Regulatory extortion via the CRA was on display on national television during Bill Clinton's summer 1999 ‘poverty tour.’ One of the corporate executives who accompanied Clinton on his tour of economically depressed areas was the CEO of NationsBank, which was at the time in the process of merging. Before granting NationsBank permission to merge, Clinton required the bank to commit to $150 million in low-interest loans to individuals and businesses in areas chosen not by the bank, but by the Clinton administration.”10
1997 – Bear Stearns and First Union Bank
(later merged into Wachovia) issue the first CRA-loan mortgage-backed security.11
repealing capital gains taxes on home sales unless the gain is over $250,000. Since capital gains taxes are present on most other forms of investment; lifting taxation on housing distorts the investment market toward housing and away from alternatives.
1999 – Bill Clinton expands the reach of the CRA through the Gramm-Leach-Bliley Act.
The act applies CRA regulations to more banks by preventing them from expanding into mortgages or securities unless they comply with CRA rules – which is to say, unless they make more subprime loans, which they did.12 According to Investopedia, subprime refers to "A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Subprime borrowers are often turned away from traditional lenders because of their low credit rating or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment."13
1999 – Franklin Raines
former Office of Management and Budget Chief under President Clinton,
becomes CEO of Fannie Mae.
2000 –
Government Sponsored Enterprises Fannie Mae and Freddie Mac’s lobbying and campaign contributions exceed $25 million this election cycle.15
Home ownership rates in the United States reach 67.7%. 71.6 million American families own their own home – a record in American history.16
2003 Corruption at Fannie and Freddie
In 2003, the Federal Reserve lowers interest rates to 1% – the lowest since the 1960s. The rate allows borrowers to borrow at an interest rate lower than the rate of inflation, effectively subsidizing borrowers, encouraging banks and individuals to borrow as much as possible.
President Bush calls for reforming Fannie Mae and Freddie Mac by increasing their capital-reserve requirements, the percentage of liquid assets lending institutions must keep on hand incase of financial trouble.17 Third-party groups call for the two Government Sponsored Enterprises to be fully privatized, rather than the current status which privatizes profits but socializes risk. Congress, heavily lobbied by Fannie Mae and Freddie Mac to oppose the reform, opposes reform.
"I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. . . . I do not think at this point there is a problem with a threat to the Treasury.
-- Rep. Barney Frank (D-Mass.), at a hearing in 2003
Fannie Mae discloses a $1.2 billion accounting "error". It is later revealed the former political appointees who head the Government Sponsored Enterprises manipulated the numbers to bring themselves bigger bonuses.
Countrywide Financial, which sells many of its loans to the Government Sponsored Enterprises Fannie Mae and Freddie Mac, makes a special
VIP loan to President Bush’s Secretary of HUD Alphonso Jackson for a below market rate under the program now known as “Friends of Angelo”, named after the CEO of Countrywide, Angelo Mozilo.
Franklin Raines, former Clinton OMB Budget Chief and current CEO of GSE Fannie Mae, makes $20 million in 2003 alone. He also receives almost $2 million in loans from the "Friends of Angelo" Countrywide Financial program for politically connected borrowers this year.19
James Johnson, one-time advisor to Barack Obama’s presidential campaign, receives nearly $4 million in loans from "Friends of Angelo."20
2003 – Senate Committee on Banking, Housing and Urban Affairs member
Christopher Dodd (D-CT), elevated to Committee Chairman in 2007,
saves thousands of dollars by refinancing his home with a below market rate loan from “Friends of Angelo.”21 Dodd receives over $780,000 in loans below the market rate of interest. The Senate Banking Committee, according to its website, “has a broad jurisdiction over the operation of our nation’s financial institutions, housing and mass transit programs.”
2004 Wall Street Derivative Markets Expand
The Federal Reserve finally begins interest rate increases in 2004, taking the rate from 1% to 5.25% by June 2006.
In 2004, the
SEC allows five primary dealers (Lehman Brothers, Bear Sterns, Merrill Lynch, Goldman Sachs, and Morgan Stanley) to more than triple their leverage, the amount of borrowed money they use for investments.22 This little-noticed decision dramatically increases the riskiness of firms with systemic importance and accelerates the growth of the worldwide asset bubble. Of the five companies, only two remain in business by November, 2008, and both require taxpayer funding through the TARP and other regulatory interventions to survive.
Government Sponsored Enterprises Fannie Mae and Freddie Mac’s
lobbying and campaign contributions exceed $51 million in the 2004 election cycle.
Franklin Raines, CEO of Fannie Mae, goes into "early retirement" as his company is investigated for accounting irregularities. Raines was paid more than $90 million between 1998 and 2003 by Fannie Mae. The company paid record high fines for cooking the books to bring Fannie Mae quarterly profits that paid high ranking management millions of dollars in bonuses, including Raines.
Also in 2004, Sen. Kent Conrad (D-ND) receives loans from Countrywide Financial through the "Friends of Angelo" program. The June 16, 2008 Wall Street Journal reads, "Mr. Conrad had called Mr. Mozilo and asked for a loan. The result was a discounted loan on his million-dollar beach house and a separate commercial loan of a type that residential lender Countrywide did not even offer to other customers, regardless of the rate."23 Conrad receives $1.07 million in loans from Countrywide at below-market rates.
2005 Democrats Block GSE Reform
Fannie and Freddie began adding to their portfolios more than $1 trillion dollars in unpaid principal balance on subprime and Alt-A mortgages.24
In 2005, Alan Greenspan voices concerns over Fannie Mae and Freddie Mac saying, "The Federal Reserve has been unable to find any credible purpose for the huge balance sheets built by Fannie and Freddie other than the creation of profit through the exploitation of the market-granted subsidy."25
"Each Federal reserve bank shall keep itself informed of the general character and amount of the loans and investments of its member banks with a view to ascertaining whether undue use is being made of bank credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions; and, in determining whether to grant or refuse advances, rediscounts, or other credit accommodations, the Federal reserve bank shall give consideration to such information."
- U.S. Code Title 12, Chapter 3, Subchapter 7, Section 301. Powers and duties of board of directors; suspension of member bank for undue use of bank credit
Senate Banking Committee member Chuck Hagel (R-NE) sponsors
another bill to reform and regulate the Government Sponsored Enterprises Fannie Mae and Freddie Mac.26 The bill is passed out of the Senate Banking Committee. “All GOP members of the committee supported it;
all Democrats opposed it” according to the Associate Press.27 Twenty six Republican Senators plead in a letter to Senate Majority Leader Bill Frist (R-Tenn.) to allow a full Senate vote saying, "If effective regulatory reform legislation ... is not enacted this year,
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." GSE Freddie Mac ramps up its aggressive lobbying against reform, and a full Senate vote is not called.
2008 The Crisis Deepens, the Government Responds
March – Bear Stearns Bailout. The Federal Reserve Bank of New York guarantees $29 billion in toxic assets from Bear Stearns as part of a deal to
merge the insolvent company with rival J.P. Morgan. Bear Stearns was one of the major originators and holders of mortgage backed securities.
"We have a good deal of comfort about the capital cushions at these firms at the moment."
-- Christopher Cox, chairman of the SEC, when asked about Bearn Stearns on March 11, days before its collapse.
Also in March, the Bush Administration regulator James Lockhart
reduces the capital reserve requirements of Fannie and Freddie by one-third, setting the stage for their final collapse and hundreds of billions of dollars in eventual losses for taxpayers.
May - Treasury Secretary
Hank Paulson tells the Wall Street Journal, "The worst is likely to be behind us."
June – Countrywide Financial Corporation, a major beneficiary of the GSE’s loan purchase program, and its Chief Executive, Angelo Mozilo are exposed for loaning at lower than market rates to key politicians and other executives involved with regulation and oversight of Countrywide Financial through a group called the “Friends of Angelo”. He had loaned at lower than market rates to Senator Christopher Dodd, Senator Kent Conrad, former Secretary of HUD Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador assistant Secretary of State Richard Holbrooke, CEO of Fannie Mae Franklin Raines, and former Barack Obama campaign advisor James Johnson.
June – Senate Banking Committee Chairman Chris Dodd (D-Conn.) admits knowing he was a “special” customer of Countrywide Financial, but still announces he will bring to the Senate floor a housing bailout sure to help Countrywide, allowing mortgage lenders to dump up to $300 billion of their worst loans on to taxpayers.37
September – The federal government seizes insolvent Government Sponsored Enterprises Fannie Mae and Freddie Mac and places them into conservatorship. The two are now regulated by the Federal Housing Finance Agency (FHFA). Substantial reform of the failed GSEs is not a contingency of the bailout, which could end up costing taxpayers anywhere from $200 billion to $1 trillion. Under direct Treasury control, the GSEs are actually expanding their lending operations, adding to the taxpayer risk.
Also in September, American International Group, Inc. (AIG) receives an $85 billion loan from the government in exchange for 79.9 percent of the company (interest payments on corporate debt are tax deductible unless they are to an entity that controls 80 percent or more of the shares, hence 79.9 percent).38 The company sold insurance on credit default swaps involving mortgage backed securities from subprime loans, including many sold by GSEs Fannie Mae and Freddie Mac. The money is not enough to keep the company solvent and the government gives AIG a second loan for $37.8 billion in October. That additional money is still not enough and the government expands the loan to $150 billion total in November.
October – The Emergency Economic Stabilization Act of 2008 creating the Troubled Asset Relief Program (TARP) is passed to buy underperforming assets from banks. The Treasury is authorized to buy primarily mortgage backed securities from banks. Treasury Secretary Henry Paulson, however, uses some of the $700 billion to directly purchase shares of stock in banks. The government also announces plans to use Fannie Mae and Freddie Mac to buy assets from banks before TARP comes into effect.
http://www.freedomworks.org/crisis
