Genesis of the S&L crisis and the Housing Bubble

[JustinCharge 2,397]

I did some research on this years ago and lost the information a while back.  I ran across it again this morning and thought it might be of interesting to those here.

 

You need to read about the Community Reinvestment Act:

https://en.wikipedia.org/wiki/Community_Reinvestment_Act

This Act was passed under Jimmy Carter in 1977.  The reason for its passage was:

Before the Act was passed, there were severe shortages of credit available to low-and-moderate-income neighborhoods. In their 1961 report, the U.S. Commission on Civil Rights found that African-American borrowers were often required to make higher down payments and adopt faster repayment schedules. The commission also documented blanket refusals to lend in particular areas (redlining).  So basically, banks were trying to follow sound fiscal guidelines when handing out home loans. 

Liberals came along in the 1970s and said that was racist and sexist.

So they passed legislation (the CRA) that BASICALLY said "You either start handing out loans to high-risk clients or we will investigate you, find you in violation of this Act, and probably fine you severely."  So various financial institutions did.  This in turn helped cause the Savings and Loan crisis in the 1980s as S&Ls were forced into more speculative ventures to stay solvent and high risk loans was one of them.

President George H.W. Bush then tried to reform this as part of solving the S&L crisis:

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) was enacted by the 101st Congress and signed into law by President George H. W. Bush in the wake of the savings and loan crisis of the 1980s. As part of the subsequent general reform of the banking industry, FIRREA added section 807 (12. U.S.C. § 2906) to the existing CRA statutes in an effort to improve the area concerning insured depository institution examinations. The new language now required the appropriate Federal regulatory agency to prepare a written evaluation after completing the examination of an institution's record in meeting the credit needs of its entire community, including any low- and moderate-income neighborhoods within it.

Bush's reform was more symbolic than anything else, requiring a written evaluation as part of meeting credit needs.

During the Clinton administration we had 2 pieces of legislation that helped cause the housing crisis in the 2000s:

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which repealed restrictions on interstate banking, listed the Community Reinvestment Act ratings received by the out-of-state bank as a consideration when determining whether to allow interstate branches. This made it easier for banks to do businesses nationwide BUT ONLY if they followed CRA guidelines and handed out risky loans.

In 1999 the Congress enacted and President Clinton signed into law the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act. This law repealed the part of the Glass–Steagall Act that had prohibited a bank from offering a full range of investment, commercial banking, and insurance services since its enactment in 1933. On signing the Gramm-Leach-Bliley Act, President Clinton said that it, "establishes the principles that, as we expand the powers of banks, we will expand the reach of the [Community Reinvestment] Act"  The goal was to expand the CRA further by allowing these nationwide banks to offer a full suite of services (again only if compliant with CRA).

So Clinton in these two separate Acts encouraged banks to hand out high risk loans to low income applicants in exchange for nationwide access.

[TimmySmith 2,782]

Yes and it's about to happen again. It's really hard to get a loan these days. No one of lower middle class and lower has a chance at low interest money.

[frank 2,144]

I thought this thread would get no reply at all. 

[Rusty Syringes 478]

Yep, it's Clinton's fault that mortgages were handed out like Halloween candy. Terrible president.

[Mike Honcho 4,014]

You did some research and  lost it, but found it today on Wikipedia?  

[supermike80 1,285]

Yeah this isnt news.   

[RLLD 3,455]

What is this all about I wonder....  

[TimmySmith 2,782]

The only power any of us have in this world is the power to borrow money. Without it, you are a slave. We can make this thread political, but like everything else, it's not political, its socio economic.  

[Voltaire 4,556]

There was a time that I could easily read, process, and digest that information but nowadays, my eyes glaze over. I could probably succeed still if I crank up my brain to try but it's a lot of effort at this point in my life and I've grown too lazy. The jist of it is always the same, that everyday ordinary taxpayers are getting screwed. I still remember that much from back in the day. Also both parties were culpable, the uniparty has been with us our entire lives.

[RLLD 3,455]

It's really rather simple.

There are a swath of people who are perpetually poor in this nation because government policies designed to help them actually only hurt them.

The Community reinvestment act is just such a program, it actually started in the Carter/Reagan Era, but it was Clinton who gave it juice.

If the government got out of the way, people could very easily be more financially successful, but they harm the ones they pretend to protect.....every, single, time.....

[edjr 5,552]

Been waiting for the housing bubble to burst since March 2020. Still waiting

[Headslap75 0]

On 2/21/2021 at 3:42 PM, frank said:

I thought this thread would get no reply at all. 

Is anybody listening

[Cdub100 3,379]

On 2/22/2021 at 8:07 AM, RLLD said:

It's really rather simple.

There are a swath of people who are perpetually poor in this nation because government policies designed to help them actually only hurt them.

The Community reinvestment act is just such a program, it actually started in the Carter/Reagan Era, but it was Clinton who gave it juice.

If the government got out of the way, people could very easily be more financially successful, but they harm the ones they pretend to protect.....every, single, time.....

Dumb people are poor because they are dumb. Nothing the government can do will ever fix that.

[RLLD 3,455]

55 minutes ago, Cdub100 said:

Dumb people are poor because they are dumb. Nothing the government can do will ever fix that.

Well, they seem pretty sure that they can steal from you and your descendants and give it to these people and that will fix things right up.

[TimmySmith 2,782]

59 minutes ago, Cdub100 said:

Dumb people are poor because they are dumb. Nothing the government can do will ever fix that.

They could, but why would they.  In fact they are in the process of dumbing down as much of America as they can.  They are taking no chances.