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Markets Crash, Media Hysterical, Democrats Thrilled
Of course, you won’t find Obama predicting catastrophe and economic collapse. He's leaving that to his surrogates.
“McCain Loses Fox News” blared the headline at the liberal website Think Progress. And that appeared to be the least of the Republican nominee’s worries. From Wall Street to Main Street, Democrats could barely contain their glee over the sudden turn of events that culminated in the crisis in the markets on Monday.
When financial writers ran out of dire adjectives to describe the serious crisis in the markets, Democratic and liberal blogs helped them out by managing to find a few more. After all, business reporters are not generally given to hyperbole, and the adjective is something of a stranger to them. Thankfully, Obama-supporting websites had access to an online thesaurus or two which they were able to comb for exactly the right apocalyptic language that would freeze the blood while getting the point across that John McCain was at fault by reason of his association with George Bush and that it was time to make sure the windows on those Wall Street skyscrapers were suicide-proofed.
New York Times columnist, blogger, and resident hysteric Paul Krugman referred to the day’s 500 point stock market drop as “Black Monday.” The problem with that is that 1) the name has already been taken; and 2) it is hyperbole.
The real “Black Monday” occurred on October 19, 1987, when stocks lost more than 22% of their value. Today’s market “turmoil” (which is as hyperbolic as the New York Times feels like getting) resulted in a loss of 4.4% in the value of the stock market. This is serious for those of us who have invested in mutual funds (I would suggest downing a good, stiff, Glenlivet or perhaps a strawberry martini before checking your portfolio today) but hardly the kind of thing that will result in an economic collapse.
Now before I am accused of trying to minimize the situation, allow me to plead guilty of my own accord. In fact, compared to the way that Democrats have gone overboard in describing what has happened, I am indeed trying to inject a little sanity into the debate. I can only go by what respected, nominally non-partisan analysts are saying. For the most part, there seems to be general agreement that the situation is serious but that the Federal Reserve is on top of the situation. There is some disagreement whether the federal government should be stepping in with both feet, but, as far as the immediate crisis, it is being handled.
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Rick Moran is PJM Chicago editor; his own blog is Right Wing Nut House.
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58 Comments
1. Jeff:Democrats are NOT thrilled that the markets are crashing. It just re-affirms that America IS facing a major economic crisis and the Democrats are merely pointing out that this is due to all of the failed economic policies of this current Administration, one that McCain agrees with a lot of the time. Trying to paint that the Democrats are in any way thrilled is ludicrous, at best.
Like Bush, McCain will not admit that we are facing an economic crisis. On the campaign trail in Jacksonville, Florida, yesterday, McCain declared that, “the fundamentals of our economy are strong”. When will he ever admit that we are facing an economic crisis? Can he turn this economy around with this kind of ignorance? One must acknowledge the current situation at hand before one can make any dramatic changes for the better.
Sep 16, 2008 - 1:13 am 2. Danny:Jeff,
Hate to break the news but the de-regulation of commercial banks to allow them to enter the securities business was done under Clinton. The world had four larger and more serious “crashes” under Clinton – 1994, 1997, 1998 and 2000.
Sep 16, 2008 - 1:50 am 3. Samantha:Jeff,
How, specifically, did Bush cause the subprime morgage crisis?
It is my understanding that given the inevitability of boom and bust cycles and the autonomy of the Fed, the President/Congress have little to do with the economy.
Sep 16, 2008 - 2:17 am 4. Ed Wallis:Danny and Samantha,
Good points.
When one doesn’t have any real arguments (as is the case with most Axelrod astroturf writers), all one ends up with are the verbal equivalents of “buttons and bumperstickers.”
This seems to be the case (repeatedly) with poster #1….
Sep 16, 2008 - 3:33 am 5. A Stoner:Jeff, yes they are thrilled that the markets are crashing. Otherwise, they would not be feeding fuel into the fire by telling Americans it is worse than it really is. They are trying to stampede people into bad decisions for political gain. Note the bank that closed due to a Democrat’s message, it is highly likely the bank would have not went down, except that everyone was forced into panic mode, because a Democrat decided to say it would go bankrupt. Same here, Democrats are happily feeding fuel into the fire, saying everything is screwed up, and there is no hope unless Barack is elected president. Does that really sound like someone who is just simply telling the truth?
Sep 16, 2008 - 4:43 am 6. Boris:Democrats are ecstatic that Bush and Co. have screwed up the country. Yay, screw-ups!
Sep 16, 2008 - 5:10 am 7. ozziepat:Jeff is typical of the left. Anything negative which happens in the world triggers a drooling kneejerk reaction which reduces to, “Bush is evil.”
This is a market adjustment which needs to be allowed to run its course without excessive government intervention. Think of it as a kind of evolutionary developmental step. On the other side will be a healthier financial system.
Danny is correct about Clinton. Look it up. And I will add that Congress and the congressional committees responsible for banking oversight have been under Democratic control for almost two years now. Not that the Dems bear sole responsibility for the temporary mess, but they have certainly been complicit and negligent.
Sep 16, 2008 - 5:14 am 8. Rob:Somebody needs to tell Obama that when the market’s down 500 points, a responsible president (or candidate) doesn’t make things worse by saying everything is falling apart. McCain showed he was the adult here.
Sep 16, 2008 - 5:26 am 9. 888:Greenspan is one to talk. He’s one of the main culprits of this financial meltdown. He repeatedly lowered, then kept, the interest rates dangerously low from 2002 through 2005, even after it was no longer necessary to keep the rates low to stimulate the economy. The net result was the manic, free-for-all environment of sub-prime lending which played on the greed of banks, mortgage brokers and, of course, the homeowner. As the top-dog economist, he should have known to tighten the money supply to avert this banking and housing disaster. He had no bones and no foresight. Also, as Fed Chief, he looked away and didn’t REGULATE the banking system as he had an obligation to do. He merely walked around with that Napoleonic swagger and left Bernanke to clean up after him. Now, Greenspan, his biased joke-of-a-journalist wife, Andrea Mitchell, Obama and the rest of the self-righteous, elitist establishment are blaming Bush and McCain for this debacle. What a joke. Blame this on greed, mismanagement and Mr. Greenspan, plain and simple.
Sep 16, 2008 - 5:54 am 10. RE:Government caused this problem. Government intervention to kick the can down the road by using taxpayers dollars to shield markets (and favored individuals) from risk.
Isn’t it odd that Jamie Gorelick’s name rises out of the muck again?
Medicare, Medicaid, and Social Security are on the same track.
Sep 16, 2008 - 6:00 am 11. RE:Government caused this problem. Government intervention to kick the can down the road by using taxpayers dollars to shield markets (and favored individuals) from risk.
Isn’t it odd that Jamie Gorelick’s name rises out of the muck again?
An awful lot of (D)’s appear in the list of names of people connected to this debacle.
Medicare, Medicaid, and Social Security are on the same track.
Sep 16, 2008 - 6:03 am 12. Marina:What do you think, is it possible that SOROS has artificially provoked this “little september disaster”?
If one takes into account Soros’ hedge fonds activities and the Lehman Brothers’ links to the Democratic party… And if one thinks that “everything-is-bad-in-America” message is getting weaker and weaker…
Just a question.
Sep 16, 2008 - 6:21 am 13. cedarford:Jeff – It just re-affirms that America IS facing a major economic crisis and the Democrats are merely pointing out that this is due to all of the failed economic policies of this current Administration, one that McCain agrees with a lot of the time.
Jeff ignores that deregualtion was pushed by Clinton, with considerable support from heavy Democrat donors at investment banks like Goldman Sachs, Lehman Bros, etc. And the Republican idiots who worship less regulation, oversight, and their sacred “free markets” who claimed that the “Doer-Folk” of Wall Street were morally pure Titans who would do the best for America.
Both Parties are bag-holders.
Fannie and Freddie Mac were actually dumping grounds for loyal Democrat hacks who donated enough to Dem Party coffers. Many of Obamas senior, inner circle consists of such “Titans” coming out of Freddie and Fanny and executive spots at Goldman Sachs, Countrywide, AIG, Fanny and Freddie Mac.
“Corrupticans” also have their noses in the Old Boys Network trough and their own coterie of fatcats they do mutual backscratching and circle jerks with.
And the horrific Bush II cheerlead the whole subprime fiasco, appearing with some of the Main culprits to tout his “Ownership Society” of perpetual tax breaks for the wealthy and no-credit loans to put some ChinaMart store clerk single mom with no savings and 3 kids into a 300,000 dollar house in San Jose. To that awful, failed President, it was no problemo – money was everywhere, should be handed out to anyone, freely spent by Government for any need Dubya seemed to think worthy – and since real estate never went down and Dubya signalled the Gov’t and the taxpayer stood behind every loan, no risk to banks.
The illegal alien at the ChinaMart would never walk if the 300K house ever lost value, but if she did, against all expectations, the taxpayer and Dubya, and both Parties in Congress would ride to the rescue and also ensure huge golden parachutes to bigshot Dem and Corruptican donors in charge of the banks.
====================
On the political side, McCain played the Wise Man trying to reassure nervous voters that the financial system and the economy are not in real trouble – no doubt to prevent “panic”.
But in a political context, McCains semi-sincere or insincere reassurances echoing Bush’s “ignore the collapses and trillions in bad paper – because The fundamentals are Still Strong” – was the dumbest thing he has done since working an Amnesty deal with his “Good Friend” Teddy Kennedy.
(His aides were able to block McCains and his weasel pal Lindsay Graham’s scheme to make “Dear Friend” Joe Lieberman his VP – which would have made McCain DOA before his Convention acceptance speech.)
Expect McCain and his “fundamentals of the economy are great” words to be hammered on him in ads in every Northern industrial state that has been screwed by free trade and globalization, and all the “hot” real estate areas facing plummeting home values and bank failures. Well, if the financial crisis lasts through the end of September and October, which it seems likely to, with a new bank or insurance company a week being eviscerated..
Why would anyone listen to McCain claiming he will reform something with such “strong fundamentals”?
Sep 16, 2008 - 7:05 am 14. Anthony, Saint Louis:If Americans would assist on bring the troops home we could save 10 billion a month. America doesn’t even know why we are still in Iraq. It is very very financially stupid.
Sep 16, 2008 - 7:06 am 15. Trent Telenko:The Obama campaign is very lucky they did not take Hillary as VP.
The current financial crisis is due to bi-partisan, but mainly Clinton Aministration, financial corruption.
If Hillary was on the Obama ticket, there would be no way Obama could avoid blame for the current financial mess and he would take down ballot Democrats with him.
Sep 16, 2008 - 7:24 am 16. jbb:We’ll get to the bottom when congress investigates. Oh right, never mind. Where’s Chuck Schumer when we need him? Maybe this can be fixed with a well-timed letter.
Sep 16, 2008 - 7:29 am 17. penny:This IBD editorial puts the blame squarely on Clinton’s doorstep.
He planted the seeds.
http://ibdeditorial.com/IBDArticles.aspx?id=306370789279709
Sep 16, 2008 - 8:47 am 18. HT:Please will someone explain how “the current administration” lead everyone by the nose to purchase a home they could not afford. Every politician since George Washington has encouraged home ownership one way or another. Lots of people – left, right, and stupid – got greedy and this is what happens every time.
Sep 16, 2008 - 8:53 am 19. Sarge:How much responsibility has the Bush Administration over the financial institutions?
Sep 16, 2008 - 9:25 am 20. CarolO:Should we prosecute the leaders of those failed institutions? When will we stop bailing out failed companies?
Slowly, ever so slowly we embrace Socialism, the government will own everything and we will own nothing! I thought once I would leave this world better off than when I entered it! Im’ a 84 combat vet of WWII. Im’ afraid for my grandchildren!!!
Why would the Democrats be thrilled over the stock market crash? We’re paying the same way that the Republicans are paying……thru their noses. We do not want to leave our children in an economist mess anymore than you do.
Do you think no Democrats lost their homes and jobs and only your party did?
Clinton left office with a surplus and look at the mess the economy is in now.
Sep 16, 2008 - 10:28 am 21. Dave Hippo:Is this the same McCain who was part of the Keating Five? He sure did a bang-up job of regulating those Savings and Loans. But that debacle probably was Clinton’s fault, too.
Sep 16, 2008 - 10:57 am 22. CodeSensible:We are not thrilled. But we want someone to fix it. Now. The Republicans have proven that they don’t have a clue. Give the Democrats a shot at it. If they fail, boot them out in four years. But if Obama/Biden do well, give them another 4. Obama said last week that he picked Biden to help him run this country. Our country is so problem prone that it now needs two people to run it. There can be no more of the vice-president sitting in the back room waiting for the president to keel over. But do you want the hot-heads of McCain and “no blink” Palin to get any where near that red button?
Sep 16, 2008 - 11:00 am 23. coyotl:Former GOP Senator Phil Gramm has been the leading legislator in pushing for deregulation in both the energy markets and mortgage industry. He sponsored the “Enron Loophole” (Commodity Futures Modernization Act of 2000) and attached his name to the Gramm-Leach-Bliley Act of 1999 which deregulated so many brokerage activities. He’s a terrible economic adviser to have around during an election season, especially for anyone running as a reform candidate.
McCain should’ve thrown him under a bus months ago.
Sep 16, 2008 - 11:11 am 24. clr33:Boy – a pretty yellow journalism picture CNN is showing this time… smiling Obama – mean looking McCain? When are they going to learn?
As for the deregulation – do a little fact checking.. this was done under Clinton.
Sep 16, 2008 - 11:46 am 25. Robert Hurley:Let me see if I get it. The market crashes and is now about 300 point above where it had been when Bush took office and whose fault is it. Oh it must be Obama’s. What the Democrats are joyful about is that is drives home the association of Republicans with a disasterous financial picture.
Sep 16, 2008 - 12:11 pm 26. brenda:Sick Sick Sick
It angers me that a political party would revel at such sad news to make it a political gain.
They should be ashamed of themselves
Sep 16, 2008 - 12:13 pm 27. Matt, Esq.:We want “someone” to fix it.
Its a free market economy- nobody can just “fix it”.
Libs, maybe you should have studied business and ecnommics in college instead of woman’s studies and modern art. Then, stuff like the way the economy works wouldn’t be some hard to figure out.
*But do you want the hot-heads of McCain and “no blink” Palin to get any where near that red button?*
All I can tell you I don’t want an inexperienced empty suit community organizer running our country, with or without joe biden “assisting him”.
Please.
Sep 16, 2008 - 12:15 pm 28. brenda:Sick Sick Sick
It disturbs me that a political party would take such a sad day, and revel in it for political gain.
How is this McCains fault?
Sep 16, 2008 - 12:17 pm 29. brenda:oh Jeff !!
Here is a news tip. The majority of the world is facing an ecomonic problem right now.
Sep 16, 2008 - 12:18 pm 30. elHombre:Jeff: McCain declared that, “the fundamentals of our economy are strong”. When will he ever admit that we are facing an economic crisis?”
What part of “fundamental” don’t you understand? How is this statement a denial that we are facing a crisis? Maybe this will help: “Mrs. Jones, we are putting Mr. Jones on antibiotics for his illness, but his heath is fundamentally good.” Get it?
Hippo: “Is this the same McCain who was part of the Keating Five?”
Never mind that McCain was cleared of wrongdoing by a Democrat acting as counsel for the Senate Ethics Committee. It is a tenet of Obot justice that if you oppose The One you are, “Guilty even after proven innocent!”
Sep 16, 2008 - 12:22 pm 31. Jeff:Ah Ed Wallis,
It is always good to hear your simple minded opinions, ole timer. What else do you have in your old bag of tricks?
Sep 16, 2008 - 12:23 pm 32. Jeff:elHombre,
What is economically fundamental to you and your family?
Sep 16, 2008 - 12:27 pm 33. William of Orange:Goodness me, I hope our beloved Messiah develops his Google skills before attempting to use the collapse of Fannie Mae, Freddie Mac, and Lehman Brothers as political hay. There are many entries all over the internet similar to the one below:
“The current financial crisis has only one entity to blame – the government, not the free market. Bailing out Fannie Mae and Freddie Mac will only bankrupt future generations. This government-sponsored entity was to guarantee risky loans made by the private sector. Had these loans not been guaranteed by the corrupt and secretive Fannie and Freddie, banks would not have made these kinds of risky loans.
“Even when Fannie Mae was being mishandled, those at the helm, i.e. corrupt Clinton appointees, Franklin Raines, and Jim Johnson, took multi-million dollar bonuses before they left the company in a shamble. According to Democrat Barney Frank, $245 million in bonuses were paid over five years to Fannie Mae executives (mostly Clinton appointees). Like pigs at the trough, and no oversight or transparency, government organizations like these two are prone to corruption and mismanagement. Why? By alleviating responsibility and accountability by risk takers (lending institutions), the taxpayer is left with the bill when loans turn sour. Bush did not create this mess. He inherited it from Clinton. Plus, these organizations pay no state or local income taxes, and receive an estimated $10 billion a year in hidden taxpayer subsidies.”
here are the links; enjoy!
http://richmar.blogspot.com/2008/09/corrupt-fannie-mae-officials-now.html
http://articles.latimes.com/2008/jun/12/nation/na-johnson12
Sep 16, 2008 - 12:44 pm 34. ic:Unfortunately for Democrats, by mid October, the market will recover. It always does. After “blood on the street”, the sharks come out to prey and turn the market around.
Sep 16, 2008 - 1:04 pm 35. Robert Hurley:Brenda:
Please this is exactly what Reagan did when he ran for the Presidency
Sep 16, 2008 - 1:22 pm 36. tomw:How is Bush responsible? It happened on his watch, end of argument.
Everything else is just a bunch of excuses. Shut it, because a competent administration would have seen this coming and done something to avert it.
Look, if you really believe electing McCain will get us out of this by implementing the same economic policies as Bush, you’re fooling yourselves. Tax breaks for the rich and trickle down economy doesn’t work. It’s why the gap between the wealthy and poor has widened. If you make more than $200K/year, you’ll vote for McCain, and he’ll represent your interest. If you’re like the 95% of the rest of us, elect a candidate that will speak for you. We need leadership that’s capable of communicating in an honest, forthright, and convincing manner. There is going to be some VERY serious shit coming down the pike imminently. Hopefully AIG doesn’t go down too, otherwise the bottom will likely fall out.
Sep 16, 2008 - 2:13 pm 37. Night Owl:Those who want to spend their time blaming one party or another for the current financial crisis, have at it. But be sure to look in the mirror form time to time. Those who rely on excessive credit to fund self-indulgent life-styles will share in the blame if our economy collapses. An economy built on excessive debt is shaky at best. When there is not enough money to cover all the debt- as in the current mortgage mess- well you’ve got trouble.
As an example, I personally know people who moan about how they can barely afford to pay for their kid’s college tuition, yet at the same time they borrowed to finance an in-ground pool and hot tub. Then they complain that they can’t qualify for any gov’t education grants. Should they blame Bush and the Republicans for their bad financial decision making if they have to declare bankruptcy? Did he make them put that pool and hot tub before their kid’s education? Multiply this case by hundreds of thousands and we have many families in a financial crisis, and an economy waiting to feel the impact of their poor financial choices when the bills come due.
As for Obama using this as an opportunity to blame Republicans- shock and surprise. It merely reinforces the fact that he is just a typical opportunistic politician. No real change there.
And those “fundamentals” McCain speaks of won’t hold if we the people have lost the ability to make rational, responsible financial choices.
Sep 16, 2008 - 2:25 pm 38. Howard:Obama keeps crying about how bad the economy is,
Sep 16, 2008 - 2:26 pm 39. Brian:but if Americans are hurting so bad, how come they
were able to send Obama 66 million dollars last month?
… And, tonight Obama is asking Americans to give him
$28,500.00 each for the Obama/Streisand fund
raiser dinner. Two faced Obama has no credibility.
No Wright, no Farrakhan, no Pfleger, no Rezko,
no Ayers, no mean Michelle, and, NOBAMA !!!
Howard-Good point.Just where is that money coming from?Americans must still have jobs and income if Obama raised 66 million in a month?This crisis might have been averted also if the deed holders would check credit rating.Cmon people who are a credit risk ,whine when they go under with a house they should not have had in the first place?I mean how can a mortgage be given to someone who cant even pay rent on time and then be expected to pay a mortgage?Baffling.
Sep 16, 2008 - 3:07 pm 40. tomw:Night Owl:
Obama isn’t using this as an opportunity to blame anyone (though he could), it’s an opportunity to show how his plan is in touch with the reality of the situation, and how McCain is hopelessly out of touch. Because the fundamentals of our economy are not strong.
Howard:
Sep 16, 2008 - 3:21 pm 41. 888:We are donating to Obama, even when we can’t afford to, because we feel that strongly about the election.
Howard, you hit it right on the target. The fundamentals are sound for this country; Europe has it worse than us — high cost of living, double digit everything. The woes are shouldered primarily by the financial/banking/mortgage sectors and the homeowners (who refinanced and refinanced and refinanced and bought 2nd and 3rd homes because the “rates are so low!”) and the 1st time home buyers who were at risk in the first place, non-creditworthy and should not have been approved for the ‘no down payment’-type mortgages. Again, it comes down to plain greed by all parties, speculation, corporate mismanagement and Greenspan’s bad decisions which fueled all of the above. We do not need any more regulations as Obama is stating so he can blame everything on Bush and McCain — regulations already exist to counter white collar financial and accounting fraud and mismanagement, unethical lending practices, etc., etc. These regulations just need to be enforced, but with widespread cover-ups by the corporations (a la Enron) in the face of shareholder ire and calls for accountability, I now can see the difficulty in enforcing such regulations. And, yes, the Clinton Administration also is at fault here — the Fannie Mae/Freddie Mac train wreck actually started during CLINTON’s watch when his own staffers had their hands and pockets in all kinds of corrupt and shady deals that put the Fannie/Freddie Mac programs at high risk. Bush and Bernanke have been trying to fix this problem that they inherited, but the next president will need to have the courage and strength of character (not beholden to any party, special interest or lobbyist groups) to stand up to not only big business, but also to the ‘business as usual’ government fixtures. McCain-Palin is the team who can fix this economic and financial wreck we’re in.
Sep 16, 2008 - 3:28 pm 42. Steynian 248 « Free Mark Steyn!:[...] CNN’s Crowley: Obama Team Wanted ‘Horrific’ Wall Street Headlines. Markets Crash, Media Hysterical, Democrats Thrilled …. (newsbusters, [...]
Sep 16, 2008 - 3:46 pm 43. Freedom is just another word...:Freddie and Fannie are largely a Democratic engine to allow the poor to get affordable housing. Freddie and Fannie “donate” largely to Democratic candidates, and largely to Obama. The top of Freddie and Fannie are Democrats, and by no accident are now Obama’s campaign gurus and advisers.
Freddie and Fannie’s officials have a vested interest to get Obama elected. It’s a “CYA” election.
The current housing crisis started with Clinton, and his appointed officials….who remained at the helm. These officials decided to increase lending to people who did not qualify, to package these bad loans and sell them on Wall Street/banks, to use the Wall Street proceeds to lure banking investors and to do more bad loans. When the banking industry gave Freddie/Fannie loans of credit, it put our FDIC in peril.
Fannie/Freddie execs did not decide to “shore up” their capital reserves, despite taking on this risky portfolio.
I am caught in this housing problem. While I put 20% down on a home and paid points to get an exceptional interest rate, my house is now worth 1/2 of what I paid for it. I have lost all my equity and am “upside down” on my house note. I can’t take a job in another city, because I can’t sell my house in this city. I can’t even rent the current house, because the rental market is over flooded.
I am damn mad at the Democrats for this mess. The media needs to report on it. Congress and the Attorney General needs to investigate this. I want heads to roll, just like they did with Enron and the baseball players. This banking mess eclipses those messes.
We need good accountants, not politicians.
I give my cudos to McCain who was warning all about this impending problems a few years ago.
I give “both thumbs down” to the Democrats and to Obama for my mess. I AM WORSE OFF, THANKS TO THE HOUSING BUST.
Sep 16, 2008 - 5:37 pm 44. Oh No! Market Downturn! « Tai-Chi Policy:[...] September 16, 2008 Posted by taoist in Capitalism and Economics, History. trackback Obama and the Democrats are rejoicing, and trying to pin as much as possible on the Republicans and the Bush administration. Certainly [...]
Sep 16, 2008 - 5:52 pm 45. Laker:The Government-Created Subprime Mortgage Meltdown
by Thomas J. DiLorenzo
The thousands of mortgage defaults and foreclosures in the “subprime” housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call “communities of color” that they might not otherwise make based on purely economic criteria.
The original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various “neighborhood organizations,” as they like to call themselves, such as “ACORN” (Association of Community Organizations for Reform Now). These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act.
So-called “community groups” like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA “protest” is issued by a “community group.” This can cost banks great sums of money, and the “community groups” understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.
A man named Bruce Marks became quite notorious during the last decade for pressuring banks to earmark literally billions of dollars to his organization, the “Neighborhood Assistance Corporation of America.” He once boasted to the New York Times that he had “won” loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group. And that is just one “community group” operating in one city – Boston.
Banks have been placed in a Catch 22 situation by the CRA: If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters.
Consequently, banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as “subprime” loans. In order to compensate themselves for the added risk of extending these loans, many lenders have increased the lending fees associated with mortgage loans. This is simply an indirect way of doing what banks always do – and what they must do to remain solvent: charging effectively higher rates of interest on riskier loans.
But this is discriminatory!, complained the “community organizations.” Thus, if one browses the ACORN web site, one can read of their boasts of having “predatory lending laws” passed in numerous states which outlaw such fees, prohibiting banks from protecting themselves from the added risk involved in making forced loans to “subprime” borrowers.
These are price control laws, and price controls always cause shortages. Normally, banks would respond to such laws by extending fewer riskier loans. But in this case the banks are forced to continue making the marginal loans by their bureaucratic masters at the Fed and the other three federal bureaucracies mentioned above. So-called predatory lending laws therefore force the banks to “eat” the losses. This is undoubtedly a contributing factor to the bankruptcy of dozens of mortgage lenders over the past year.
Then of course there is the issue of the Fed’s monetary policy having created the housing bubble, characterized by a spectacular escalation of real estate values in every American city over the past decade or so. This created a further problem for the financial institutions that are victimized by the CRA. They are forced to make a certain amount of bad loans, but because of the Fed-created explosion in housing prices, many thousands of subprime borrowers no longer qualified, by a long stretch, for conventional mortgages based on their incomes.
The only way these borrowers could qualify for their mortgage loans (even ignoring their bad credit ratings) was to take out adjustable rate mortgages, some of which had astonishingly low first-year rates in the 3 percent range, and sometimes lower. This is what has largely fueled the subprime mortgage meltdown – the inability of thousands of subprime borrowers to afford their mortgages now that their rates have adjusted upward. Thus, the combination of the Fed’s enforcement of the CRA (with the help of political pressure groups like ACORN) and its post 9/11 monetary policy in general are the reasons for the bursting real estate bubble and the “subprime” mortgage meltdown.
Don’t expect to read about this in the “mainstream media,” however, which generally views groups like ACORN as heroic champions of the poor, laws like the CRA as anti-discrimination laws, and places all of the blame for the subprime mortgage meltdown on greedy capitalists, especially mortgage brokers. Encouraged by such reporting, the odious Senator Charles Schumer of New York has promised federal legislation that will reign in these miscreants, while the Bush administration is proposing an indirect bank bailout by having the Federal Housing Administration cover many of the bad “subprime” loans. This will create what economists call a “moral hazard” by encouraging even more bad loans to be extended in the future. Every banker in America will be glad to extend loans (at high rates of interest) to the most uncreditworthy borrowers if he thinks there is no possibility of default with the FHA effectively guaranteeing the loan.
September 6, 2007
Thomas J. DiLorenzo [send him mail] professor of economics at Loyola College in Maryland and the author of The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War, (Three Rivers Press/Random House). His latest book is Lincoln Unmasked: What You’re Not Supposed To Know about Dishonest Abe (Crown Forum/Random House).
Copyright © 2007 LewRockwell.com
Thomas DiLorenzo Archives at LRC
Thomas DiLorenzo Archives at Mises.org
Sep 16, 2008 - 7:01 pm 46. harveydawabbitt:this story chronicles the exact details of the corruption of our capital markets.
Sep 16, 2008 - 7:14 pm 47. Not a Lib:it is a long story highly documented and the first in a series of deep capture.
http://www.deepcapture.com/wp-content/uploads/2008/06/deepcapture-the-story-v1.pdf
Obama is a Socialist
Sep 16, 2008 - 8:30 pm 48. lee:The “rich” already pay already pay a substabtial amount of the nation’s taxes. 200,000K isn’t what it used to be 10 years ago, or maybe even 5 years ago. And SURPRISE! not all of us who make that kind of figure are laid back CEOs.
If a big company you work for is slapped with a big tax, will your salary and benefits increase? The CEOs and executives may have it easy, but smaller hands assemble, package, ship, and make the products that bring in the riches. Who’s gonna get hurt if taxes go up in this kind of economy?
Tax hikes do not help a sour economy, whether on the rich or not.
Sep 16, 2008 - 10:25 pm 49. Paul from Florida:Medicade, Medicare and Social Security have 70 TRILLION in future obligations. Obviouly it’s due to those tricky Republican thugs. Thank God there are enough rich people to tax 70 Trillion, cause, er, you know, the middle class is, um, stressed. Or something.
Vote Democrat. Today’ s taxes are ‘investments’ that will pay off, and, um, then we won’t need them, ’cause people will be edjamakated in publik skools and warm and loving in public housing projects eating big blocks of government cheese and then going to mid night basketball to work off poor people fat that they get from being starved.
Sep 17, 2008 - 12:10 am 50. George Brown:Nancy Polosi takes no responsibility. She appointed such as banking and finance or ways and means for chairman. Both Reid and Polosi allows drilling for oil only in non-oil producing location. Causing most of our economy faultering since 2006 election.
The Democrats and their media blame Bush for all things. The president does not make laws or make these chairman appointments. American voters elect these people and should expect elected officials to take responsibility and not point the finger to another elected official. The individual elected cannot say they do not take responsibility for the task they were elected. So if you keep Reid, Polosi and elect BH Obama they are very good about not knowing but acting on their ignorance.
George Brown
Andover KS
Sep 17, 2008 - 9:02 am 51. Carl:Barack Obama’s Fannie Mae/Freddie Mac Connection
Fox News ^ | Sep 16, 2008 | John Gibson
Posted on Wednesday, September 17, 2008 18:02:40 by fightinJAG
Freddie and Fannie used huge lobbying budgets and political contributions to keep regulators off their backs.
A group called the Center for Responsive Politics keeps track of which politicians get Fannie and Freddie political contributions. The top three U.S. senators getting big Fannie and Freddie political bucks were Democrats and No. 2 is Sen. Barack Obama.
Now remember, he’s only been in the Senate four years, but he still managed to grab the No. 2 spot ahead of John Kerry — decades in the Senate — and Chris Dodd, who is chairman of the Senate Banking Committee.
Fannie and Freddie have been creations of the congressional Democrats and the Clinton White House, designed to make mortgages available to more people and, as it turns out, some people who couldn’t afford them.
Fannie and Freddie have also been places for big Washington Democrats to go to work in the semi-private sector and pocket millions. The Clinton administration’s White House Budget Director Franklin Raines ran Fannie and collected $50 million. Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26 million. Big Democrat Jim Johnson, recently on Obama’s VP search committee, has hauled in millions from his Fannie Mae CEO job.
Sep 17, 2008 - 5:47 pm 52. harveydawabbitt:THERE IS A CONCERNED SHAREHOLDERS GROUP WHO HAS BEEN TRYING TO TELL THE POWERS THAT BE FOR MANY MANY YEARS ABOUT THE ABUSIVE SHORT SELLING IN OUR MARKETS.
Sep 18, 2008 - 6:24 pm 53. harveydawabbitt:YOU MAY HAVE HEARD IT AS THE TERM “NAKED SHORT SELLING”
WE WERE TOLD WE ARE PURE CRAZY TIN FOIL HAT WEARING LUNATICS.
AS IT HAPPENS WE WERE SPOT ON FROM DAY ONE.
I PERSONALLY HAVE SPENT THE PAST TWO YEARS OR SO DAY AND NIGHT NON STOP E-MAILING AND CALLING EVERYONE AND EVERYBODY THAT I THOUGHT COULD ACTUALLY
PUT A STOP TO THE MASSIVE FRUAD WE NOW SEE UNFOLDING BEFORE OUR EYES.
MANY MORE OF FOLKS LIKE ME HAVE SPENT MANY MORE YEARS THAN I DOING THE SAME THING… TRYING TO SOUND THE ALARM.
IF YOU CARE TO GET UP TO SPEED ON THIS MASSIVE FRAUD MAY I SUGGEST YOU READ THE FOLLOWING….
http://www.deepcapture.com/wp-content/uploads/2008/06/deepcapture-the-story-v1.pdf
OR YOU CAN GET MORE INFO HERE….
http://www.thesanitycheck.com/
This is a must read! This is also a must distribute to everyone in your email list with instructions to send this to everyone in their email lists. Please send this to all Congressman, Senators, Federal agencies, state legislators, state agencies, unions, national media outlets, your local media outlets, the AARP, national and local Chambers of Commerce, and anyone else you can think of.
Below is a link to the publicly shared file that can be posted on financial chat boards for download by the reader; every company on every board.
http://www.mediafire.com/?nov34hjnbrr
Let’s get this into a the hands of a million citizens, regulators, legislators, and media before the day is out! Let’s make sure every Congressman and Senator’s inbox receives this at least 100 times!
I’m only a messenger. Dispute the facts if you must! Where are our regulators and who are they protecting?
Godspeed!
Sep 18, 2008 - 7:50 pm 54. Ex-fetus:http://en.wikipedia.org/wiki/Economic_indicator
Look at all the spin! Lets stop it shall we?
What McCain AND PRESIDENT Bush have stated. correctly, is that the economic indicators show a sound economy. They do, check for yourself.
Sep 19, 2008 - 3:30 pm 55. Marc Malone:That is a different thing from saying the economy is doing great or it is doing poorly. The last two are not indicators but antidotes. Stories told by individules. Those people telling the antidotes are also correct.
This seeming discrepancy is explained by a very simple fact.
In EVERY economy, there are winners and losers.
So the MSM, which is heavily in the tank for Ohhhh…….BAMA is finding the losers and presenting them as typical. This will work for a little while, but the problem is that Congress has more control over the federal budget, and therefore the national economy then the Administration does. Congress is Democratic.
The president proposes, Congress disposes.
Since anyone with a computer and a spreadsheet can load in the economic indicators from the above URL and then see EXACTLY who is responosible for the downturn in the indicators, which are in good shape despite what some people might be going thru. Any changes in the economy will just create a different set of losers.
“It happened on his watch, so it’s his (Bush’s) fault!) Ridiculous.
Bush tried many times to get Congress to act to prevent this. The Dems blocked him every time. McCain put in a bill to try to head this off in 2005, but the Dems stopped it. Bush and McCain did their jobs! It was the damned, greedy Dems with their hands out for campaign contributions that caused this financial mess. All they had to do was act for the good of the country, for once, instead of feathering their nests! Crooked bastards! Now, they get to determine how the bailout will be implemented. That’s why Paulson wants a blank check with no oversight, because the filthy Democratic Congress simply cannot be trusted!
Sep 24, 2008 - 4:32 am 56. Mateo:You can’t have an honest discussion about who is at fault without discussing the CRA, “Community Reinvestment Act”. Any news outlet that doesn’t mention this is grossly corrupt. I can see a picture of Uncle Sam lifting up a rock to see cowarding democrats hiding under the rock named “Blame Bush” when the actual cause of the entire mess is actually over regulation. Banks were in fact forced to carry these risky loans. Bush, in fact, tried 8 times to reign in Fannie and Freddie with one party, the democratic party, solely responsible for blocking any further regulation. They are perfectly happy with this situation because CNN, MSNBC, ABC, CBS, The New York Times, and the like more than willing to falsely place the blame on the man that tried everythin possible to prevent the situation. In fact Bush warned, as well as a hord of other republicans including McCain, that this exact situation would happen.
Sep 29, 2008 - 9:59 pm 57. Mateo:But don’t take my word for it……by all means do your own research…start with a google search of the Community Reinvestment Act.
The problem with mentioning the CRA is that anybody that reads this has probably already decided who they’ll be voting for. Obama’s supporters will foolishly and blindly be voting for him because afterall Obama wrote a letter about it once. Nevermind that McCain stood on a mountain top and warned all of us this would happen and went as far as writing legislation to prevent the issue. Never mind that Obama was actually part of the problem when he sued Citi Bank forcing them to hand out more risky loans. And most of all never mind that Obama was lifted up by Fannie Mae CEO’s and ultimately received more money in 3 years than ANY republican has in their entire careers.
Sep 29, 2008 - 10:05 pm 58. Mateo:Don’t take my word that the CRA caused this. Just ask Bill Clinton.
Sep 29, 2008 - 10:10 pm