$14,000,000,000,000.00?!? Check, Please!
About the Author: I am an ex-urbanite who escaped the city life and has lived for the past 27 years in a rural, mountainous area of Virginia that in colonial and early-American times was part of the "Backcountry." Politics: Democrat by tradition, but moderate-to-conservative views on most issues; I fit the description of "traditionalist." Please visit my Web site, Backcountry Notes, at http://www.backcountrynotes.com/ Read more from this author
One way to measure the financial losses caused by the sub-prime mortgage meltdown and ensuing Wall Street crisis is the loss in value of real estate and stock market holdings. According to Mort Zuckerman of U.S. News and World Report, as of Sunday, October 12, that loss in value came to fourteen trillion dollars. That’s $14,000,000,000,000.00 - - enough money to pay off our entire national debt and make Social Security solvent.
Newt Gingrich summed up the financial meltdown quite well: “This is a catastrophe.” I would go a bit further and say, this is a CRAtastrophe - - CRA meaning “Community Reinvestment Act.” The unrestrained use of the CRA to compel banks to issue sub-prime loans may not be the only factor in this mess, but it is the primary factor - - the “but for” cause. But for the trillions in CRA loans, the financial meltdown would not have happened. See The Real Cost Of Social Engineering.
The CRA, adopted in 1977, was actually a good thing for decades, as long as it was treated as a goal. In the 1990s, the Clinton Administration decided that insufficient CRA loans were being made to low-income borrowers and adopted a “command-and-control” interpretation, threatening to penalize banks with did not meet CRA goals. In addition, the new regulations provided for origination fees to be paid to community organizations, like ACORN and its subsidiaries, which found new borrowers for CRA loans. These CRA loans were typically sold on the secondary mortgage market to Fannie Mae and Freddie Mac, both of which dove into the process with exuberance.
By 2003, this process was clearly out of control. The Bush Administration proposed measures to rein in Fannie Mae and Freddie Mac and the Republicans in Congress pushed a measure to the Senate floor, where it failed to come to a vote because uniform Democratic opposition left the bill short of votes to close debate. The bill died, as did another such measure proposed in 2005.
When the housing bubble burst beginning in 2006, what had been predicted by John McCain and others came to pass: CRA borrowers began defaulting on their “walk-away” mortgage loans. Many of these borrowers had purchased houses with 100% financing - - no down payment had been required. Banks are now reporting that CRA defaults have in many cases exceeded 20 per cent of the bank’s total CRA loans - - a huge, unprecedented default rate.
Large numbers of CRA loans had been purchased by Fannie Mae and Freddie Mac and bundled into so-called mortgage-backed securities. These securities were sold to other banks as “investments.” MB securities had hundreds or thousands of mortgage loans bundled together, and often had a face value of $1 billion or more. When CRA defaults began rolling in, the value of all of these MB securities was called into question. Suddenly there were no buyers for the securities and investment banks and other financial institutions which could not meet their capitalization requirements began to fail. Then came the Wall Street bailout.
The bailout was “sold” on the questionable claim that the MB securities we taxpayers are supposed to be purchasing will eventually return double or even triple their cost. See Congressman, I Have One More Question Before You Vote On The Wall Street Bailout. Meanwhile, the Congressional Democrats have been totally unrepentant and remorseless about the matter, insisting that George W. Bush is to blame. See Fear and Loathing on Capitol Hill. Worse yet - - by including a $20,000,000,000.00 piece of ACORN pork in the first version of the bailout bill, the Congressional Democrats made it totally clear that they intend to return as soon as possible to finding ways to create more CRA loans - - back to business as usual!
Change we can believe in? I think not. The Pork Special at this Congressional cafeteria is getting too expensive for my wallet.
Waiter! CHECK, PLEASE!
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I was also posting on some of the background of this crime scene today. I’m afraid voters will fall into the “both sides are to blame,” whine.
We need to keep this in the public. I’ve noticed that the press is glad to be done with it. Their boys and girls were vulnerable and they are happy to move on.
BTW, I agree with Newt. All the moves were made too fast - plenty fast enough to get the money to the criminals.
I’d write one. Unfortunately, our bank software is screwed up and it would actually clear.