Categorized | Current Affairs

Deja vu: Obama pushing banks to make sub-prime loans





This is insane. The sub-prime meltdown and subsequent economic collapse was caused by bankers providing mortgages to people who couldn’t possibly pay them back.  Bankers, of course, extended these bad loans with plenty of encouragement from our esteemed government officials:

So now that the housing market is showing some signs of bottoming out — even recovering — what does Obama want to do?  About what you’d expect from someone who has no idea how or why markets work: more of what caused the problem in the first place, of course. No, this isn’t the Twilight Zone or a remake of Groundhog Day, and I’m not making this up:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default…

“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.

Administration officials say they are looking only to allay unnecessary hesi­ta­tion among banks and encourage safe lending to borrowers who have the financial wherewithal to pay.

Banks are already more than happy to underwrite mortgages for those who have the "financial wherewithal" to pay them back. That’s how they make money. But it’s those who don’t have the resources and credit history, especially in this anemic Obama economy, to whom bankers are hesitant to lend money. And justifiably so. So Obama’s answer is to pressure bankers to make loans to people who’d never qualify on the merits in order to "help power the economic recovery", such as it is. I thought we just tried this. How’d it work out then? Oh yes … not very well. Does Obama have no memory? Did he lose too many brain cells riding around in the choom wagon? Evidently so. Einstein’s definition of insanity comes to mind.



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