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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  • 1776er

    This comes under the heading of :

    If at first you don’t succeed in destroying the country try, try again.

    The definition of insanity is doing the same thing over and over again expecting a different result. Bush did it. So I suppose it’s Ok for Obama to make the same mistakes.

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    • Laddie_Blah_Blah

      This all started with Jimmy Carter’s Community Reinvestment Act, augmented by William Proxmire’s brilliant idea to leverage the private capital markets to finance a progressive housing program (that was going to save the taxpayer’s money – get it?), capped by the Clinton administration’s so-called "Affordable Housing Policy," which enlisted Fannie and Freddie into the sub-prime mortgage fiasco and provided the impetus for sub-prime loans and created the market for sub-prime mortgage asset backed securities.

      You have to have attended and graduated from Ivy League crackpot mills to have conceived of stuff so destructive and non-sensical. A 5th grader would not have been so stupid.

      Bush inherited the train wreck and actually tried to do a little something to stop it, but got distracted by 9/11 and the War on Terror. He didn’t do enough, but blaming the housing crisis on Bush is not even closely consistent with the known facts.

      The first housing crisis had its genesis in the progressive obsession with socially re-engineering anything and everything in sight, the bigger the better. After re-engineering housing they re-engineered health care, for example. Obama is this generation’s Carter and Clinton, combined. They never learn.

      Lefties label each self-generated fiasco socially progressive and socially just. Sane people call them insane. Intelligent people call them stupid. Taxpayers call them irresponsible. Bankrupt homeowners and people who’ve lost their health care call them catastrophic.

      The Dems and their academic and media co-conspirators think they are brilliant.

      We have to replace those morons before they destroy us and everyone else except themselves and their self-satisfied cronies.

      • socon

        Great post! Keep it up, even though it’s a pain in the buns to do so.

      • angeleno

        If you’re correct, this substantiates even more the Evil Trinity of Carter, Clinton and Obama. I thought the subprime mortgage bust that caused the 2008 depression started with Clinton. I didn’t know he got the idea from Carter but it figures. (There’s probably a seed for this to be found
        back with the nutty liberalism of LBJ). But the Carter connection cements the legacy of the THREE WORST presidents ever–Carter, No. 3 because he was prez only four years, then Clinton second worst, and of course Obama the WORST of all time by a long shot.
        Clinton was very bad but not as radical and extreme a destroyer as Obama.

        • Laddie_Blah_Blah

          "I thought the subprime mortgage bust that caused the 2008 depression started with Clinton."

          Angelino, the first spark of inspiration for re-engineering the housing market flashed into the mind of Saul Alinsky in the 1960s in Chicago. The first enabling legislation was the Community Reinvestment Act signed into law by Carter. Clinton took Carter’s program, which actually worked very well (only qualified borrowers were given loans under the CRA) and distorted it into giving mortgage loans to people who couldn’t afford them on the idiotic notion that since beneficiaries of the CRA had not defaulted, then, ipso facto, no one defaults on their home loan.

          Lending institutions at first resisted the pressure to make such obviously unsound loans coming from a variety of fed agencies, e.g. HUD, bank regulators, Congress, ACORN, et. al., but Fannie and Freddie took the risk out of those loans by buying them up and assuming the risk, thereby "making the market" for sub-prime loans. Fannie and Freddie repackaged them by the thousands and then sold them off, at a big profit, to an unsuspecting public as "sub-prime mortgage asset backed securities," i.e. junk.

          At first, the market in those securities was obscenely profitable – so much so that the mortgage lenders started packaging and selling their own sub-prime asset-backed securities. Then the Gramm-Rudman Act allowed investment bankers to get involved (e.g. Goldman-Sachs, Lehman Bros.). That was also under Clinton.

          The final straw was when Christopher Cox (SEC head under Bush) reduced loan coverage requirements for lenders from 10% to a mere 3%. Overnight, mortgage lenders funds for lending purposes were, effectively, tripled. That came at a time (2003) when the best credit risks already had mortgages, so lenders started lending to people with no income with no down payment, throwing caution to the winds. They figured if the borrower defaulted, they could repossess and write another mortgage for an even greater amount than the first. They couldn’t lose, right? Besides, they could always sell the loan to Fannie or Freddie if they didn’t want to keep that risk themselves.

          As long as home prices continued to escalate, it worked like a pretty effective Ponzi scheme, with the new buyers paying a premium to join the party and to pay off the lenders, whose profits swelled to gargantuan proportions. Greed took over and centuries-old sound lending practice was trampled in the rush to write, write, write more and more mortgages and sell, sell, sell them to Fannie, Freddie or package them and sell them to the public as sub-prime mortgage asset backed "securities."

          There were other factors which spread the risk even more, such as credit default swaps, which were, essentially, insurance policies against the default of mortgages and the collapse of sub-prime asset backed securities. That’s how insurance giant AIG got involved and why they received about $160 bn (maybe more) in bailout funds so they could honor those insurance claims from Goldman-Sachs, et. al. Hey, we wouldn’t want the "brilliant" but irresponsible junk peddlers from Wall St. to have to suffer the pain and humiliation of bankruptcy, would we? Not to mention having them go bankrupt. Perish the thought.

          When the housing market began to weaken, and mortgages started slipping "under water," and the homes were no longer worth as much as the mortgage debt, the house of cards collapsed.

          There’s a lot more to it, of course, but that’s enough for a blog comment. You can blame Alinsky and his disciples, principally ACORN, an idealistic Jimmy Carter, whose program actually worked very well, but mainly you can blame the Clinton administration’s "Affordable Housing Policy" and initiatives which took Carter’s CRA and distorted it, destroyed it, and morphed the US housing market into a contorted mess of bad debt and extraordinary risk that Fannie, Freddie and Wall St. spread to the rest of the world with their junk securities. The Bush administration supplied the straw that broke the camel’s back when Cox made the markets even more liquid. The Fed played a role in that, as well, with an easy money policy.

          Books have been written, and, as you can see, I’ve read them.

  • Patriot41

    Why should we be surprised, when radical liberals refuse to accept the fact of a bad ideal and continue to strive for a Utopia that has eluded them throughout history? To the so called progressive mind, facts are unimportant essentials elements of their grand apparitions, whatever they may be.

  • socon

    Help me out here: I thought the housing bubble and housing bust, and the subsequent economic crash, were caused by Republican loosened lending regulations and predatory lending practices by the big bad banks.

    Carter’s and Clinton’s CRA and the reckless leftist social engineering that ensued had nothing to do with the economic debacle, right?

    So many trolls have told me so over the last 4 1/2 years. They wouldn’t lie to us, would they?

  • patnatasha

    the economy is fragile and this will make matters worse.

  • petedoc810

    The man is insane, plain and simple.

  • friskyness


  • blackbird

    I saw Stuart Varney talking about this today and could not believe it. imho the problem is the Democrats are never held to account for anything the media makes sure of that so even if their was a relapse they would never be associated with the cause of the collapse/destruction.

    Maybe I am misguided but I think Obama knows the risks it’s just his ideology trumps the well-being of the Country. The end justifies the means, also the disastrous effects might be felt after he is out of office.

  • Patriot41

    To begin with, the assumption that Obama and his friends do not know what they are doing, is a very dangerous assumption. They are avowed Marxists and know full well, that in order to bring this nation to it’s knees, the economy must be trashed. In laymen terms, no money, no honey. Lest anyone be fooled, that is their agenda and it is working.

    • socon

      Very true. They know exactly what they’re doing: Cloward-Piven comes to mind.

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