Posted by
Bob B on Monday, September 22, 2008 3:21:17 PM
Selected Events
1968 The Fair Housing Act makes “red lining” illegal and pressures banks to make riskier loans.
1977 The Community Reinvestment Act expands the same cause.
The traditional mortgagors of first resort, S&Ls fade into the background when they self destruct after expanding into businesses they know nothing about.
The quasi government entities known affectionately as Fannie and Freddie become providers of money for both strong and not so strong mortgages. Banks no longer need to fund mortgages with their own deposits.
Home buyers are no longer even asked to put 20% down.
Adjustable rate mortgages become commonplace. Home buyers ignore the longer term consequences thereof.
“Stated Income Loans” followed, boldly advertising no income verification required. Just tell us what you make, we promise not to try to verify it.
“Interest Only Loans”, the ultimate carrot. Buy a home, little or no money down, no need to show any income, no requirement to make any payment to reduce the mortgage, just pay current interest.
Real Estate prices explode, naturally.
People who cannot afford houses buy them.
People who could afford $300,000 houses commit to million dollar houses.
Buyers and lenders are happy as long as prices are rising.
Eventually the market becomes saturated, prices stop rising, ARM’s start adjusting, boom turns to bust.
At one point along the way 31% of Federal agency mortgage funding was devoted to sub prime mortgages. Then came Andrew Cuomo, Clinton appointee as Secretary of HUD mandating this be increased to 50%.
2005 McCain warns of risk in this house of cards. Few listen. Democrats defend Fannie and Freddie. Nothing happens.
Franklin Raines, President of Fannie Mae gets his fanny kicked for corruption. Can you imagine that, the head of a quasi government entity corrupt ! And one supported by Democrats, the party of the people.
Chuck Schumer kills Indy Mac with one well timed memo.
Some well known investment banks hit the dust. No one really knows why. Actually no one knows what they did for a living in the first place.
We see shades of the infamous Bank Holiday of the Great Depression.
The German magazine Der Spiegel gleefully declares the end of American capitalism and the free market system. Schadenfreude exemplified.
Obama does not know what to do. McCain suggests appointing one of the major contributors to the problem as overseer of the solution, namely Andrew Cuomo.
My head is starting to hurt again but before I go let me say, given the strengths of this Nation and of the free market system we shall overcome. And it will not be long before we can say, this too has passed.