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    The Real Culprits In This Meltdown  
Political Correctness; Posted on: 2008-09-16
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Big government, multiculturalism bring on Wall Street meltdown

Obama in a statement yesterday blamed the shocking new round of
subprime-related bankruptcies on the free-market system, and specifically the
"trickle-down" economics of the Bush administration, which he tried to gig
opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that
dictated where mortgage lenders could lend, and originally helped create the
market for the high-risk subprime loans now infecting like a retrovirus the
balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no
choice but to lower lending standards to make the loans that sound business
practices had previously guarded against making. It was either that or face
stiff government penalties.

The untold story in this whole national crisis is that President Clinton put
on steroids the Community Redevelopment Act, a well-intended Carter-era law
designed to encourage minority homeownership. And in so doing, he helped
create the market for the risky subprime loans that he and Democrats now decry
as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market
for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street.
But the seed was planted in the '90s by Clinton and his social engineers. They
were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental
agencies that over the decades have come to manage the real estate market in
America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at
Fannie Mae, for example, he used it as his personal piggy bank, looting it for
a total of almost $100 million in compensation by the time he left in early
2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their
pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other
senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and
other violations, while also agreeing as part of a settlement to make changes
in its accounting procedures and ways of managing risk.

But it was too little, too late. Raines had reportedly steered Fannie Mae
business to subprime giant Countrywide Financial, which was saved from
bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her
brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to
affordable-housing lobbyists, resulted in today's nationalization of both
Fannie and Freddie, a move that is expected to cost taxpayers tens of billions
of dollars.

And the worst is far from over. By the time it is, we'll all be paying for
Clinton's social experiment, one that Obama hopes to trump with a whole new
round of meddling in the housing and jobs markets. In fact, the social
experiment Obama has planned could dwarf both the Great Society and New Deal
in size and scope.

There's a political root cause to this mess that we ignore at our peril. If we
blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be
on the hook for even larger bailouts down the road.

But the government-can-do-no-wrong crowd just doesn't get it. They won't
acknowledge the law of unintended consequences from well-meaning, if
misguided, acts.

Obama and Democrats on the Hill think even more regulation and more
interference in the market will solve the problem their policies helped cause.
For now, unarmed by the historic record, conventional wisdom is buying into
their blame-business-first rhetoric and bigger-government solutions.

While government arguably has a role in helping low-income folks buy a home,
Clinton went overboard by strong-arming lenders with tougher and tougher
regulations, which only led to lenders taking on hundreds of billions in
subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints
all over it.

Source
http://www.ibdeditorials.com/IBDArticles.aspx?id=306370789279709

News Source: IBDeditorials  

  a.. Repeals the restrictions on banks affiliating with securities firms
contained in sections 20 and 32 of the Glass-Steagall Act.

  b.. Creates a new "financial holding company" under section 4 of the Bank
Holding Company Act. Such holding company can engage in a statutorily
provided list of financial activities, including insurance and securities
underwriting and agency activities, merchant banking and insurance company
portfolio investment activities. Activities that are "complementary" to
financial activities also are authorized. The nonfinancial activities of
firms predominantly engaged in financial activities (at least 85% financial)
are grandfathered for at least 10 years, with a possibility for a five year
extension.

  c.. The Federal Reserve may not permit a company to form a financial
holding company if any of its insured depository institution subsidiaries
are not well capitalized and well managed, or did not receive at least a
satisfactory rating in their most recent CRA exam.

  d.. If any insured depository institution or insured depository
institution affiliate of a financial holding company received less than a
satisfactory rating in its most recent CRA exam, the appropriate Federal
banking agency may not approve any additional new activities or acquisitions
under the authorities granted under the Act.

  e.. Provides for State regulation of insurance, subject to a standard that
no State may discriminate against persons affiliated with a bank.

  f.. Provides that bank holding companies organized as a mutual holding
companies will be regulated on terms comparable to other bank holding
companies.

  g.. Lifts some restrictions governing nonbank banks.

  h.. Provides for a study of the use of subordinated debt to protect the
financial system and deposit funds from "too big to fail" institutions and a
study on the effect of financial modernization on the accessibility of small
business and farm loans.

  i.. Streamlines bank holding company supervision by clarifying the
regulatory roles of the Federal Reserve as the umbrella holding company
supervisor, and the State and other Federal financial regulators which
‘functionally' regulate various affiliates.

  j.. Provides for Federal bank regulators to prescribe prudential
safeguards for bank organizations engaging in new financial activities.

  k.. Prohibits FDIC assistance to affiliates and subsidiaries of banks and
thrifts.

  l.. Allows a national bank to engage in new financial activities in a
financial subsidiary, except for insurance underwriting, merchant banking,
insurance company portfolio investments, real estate development and real
estate investment, so long as the aggregate assets of all financial
subsidiaries do not exceed 45% of the parent bank's assets or $50 billion,
whichever is less. To take advantage of the new activities through a
financial subsidiary, the national bank must be well capitalized and well
managed. In addition, the top 100 banks are required to have an issue of
outstanding subordinated debt. Merchant banking activities may be approved
as a permissible activity beginning 5 years after the date of enactment of
the Act.

  m.. Ensures that appropriate anti-trust review is conducted for new
financial combinations allowed under the Act.

  n.. Provides for national treatment for foreign banks wanting to engage in
the new financial activities authorized under the Act.