How Democrats Caused The Current Economic Crisis

Harry Reid and Nancy Pelosi can point the finger all they want at Republican economic policy as the cause of our current financial crisis. In reality, however, it is a series of Democrat-sponsored legislation and regulation that has gotten us to this point. While Democrats love to point out that President Bush's approval rating is at an all time low, what they neglect to mention is that Congress's approval rating is even LOWER. Due to the recent antics of both Reid and Pelosi, this should come as no surprise. They want to blame the Republicans for the financial crisis, and they want to blame the Republicans for today's defeat of the taxpayer funded "bailout" plan for distressed corporations whose own fiscal irresponsibility, through no fault of the American taxpayer, sealed their fate.

Furthermore, this entire Fannie-Freddie fiasco can be traced back to Liberal Democrat regulatory policies and "cronyism" with the top executives at both of the mortgage giants. To add insult to injury, today's Democrats want the American taxpayer to foot the bill for their own history of disastrous, quasi-socialist economic regulations and policies. There is simply no denying this fact, and here, in as straightforward a manner as possible, is the precise chain of events that led us to where we are today:


1.) Fannie Mae was established by President Franklin Roosevelt (a Democrat) as part of his New Deal reforms, which in hindsight, did way more long-term harm than good to our nation by drastically increasing government regulation and suffocating the free enterprise system at the very core of the American economic machine. The threat to our economy had reached its climax by 1980, when, due to excessive and constraining government regulation, inflation and mortgage interest rates were at all-time highs. If Ronald Reagan had not been elected to restore laissez-faire economic policies, our economy could have very well collapsed completely.


2.) Fannie Mae's history is a textbook "precursor" to this economic crisis. I'll let Fannie itself do the talking here by citing its own website. Fannie's own words might as well be an "allocution" of its responsibility for where we are now:

"At Fannie Mae, we exist to serve America's housing market. We provide a critical source of liquidity, stability, and affordability to America's housing finance system."

"We raise capital from Wall Street and from investors in the U.S. and across the globe by selling our debt securities and use the proceeds to buy mortgages and finance housing in the United States."

"We also help lenders package the home loans they make into mortgage backed securities, making the loans easier for lenders to sell. These activities expand and replenish the flow of mortgage capital across the nation, making mortgages more affordable and more available."


3.) It gets even worse, as Fannie Mae continues its own self-indictment:

" At first, Fannie Mae, as a government agency, was authorized only to buy Federal Housing Administration (FHA) - insured mortgages, thereby replenishing the supply of lendable money for these government-backed loans."

"In 1968, Fannie Mae became a privately-owned company operating with private capital on a self-sustaining basis. Its role was expanded to buy mortgages beyond FHA-insured mortgages, thereby reaching out to a broader cross-section of Americans."

"In 1992, major legislation was enacted to modernize the regulatory framework applicable to the corporation. Regulatory responsibility was given to a newly-created Office of Federal Housing Enterprise Oversight (OFHEO) within the department of Housing and Urban Development (HUD). The new law included modernized capital standards and new affordable housing goals for Fannie Mae."

Whew . . . If all of this makes your stomach turn, please take a break because it only gets worse from here.


4.) The first real "nail in the coffin" came in 1977. A Democrat controlled Congress passed one of the most disastrous pieces of legislation in our nation's history, which was subsequently signed into law by Democrat President Jimmy Carter. This piece of legislation was called the "Community Reinvestment Act" or CRA. It placed increased pressure on financial institutions to "lend to minority groups who, at the time, represented a disproportionately low percentage of American homeowners."

This pathetic piece of legislation, which increased the already tight regulatory grip our government exerted over our banks and financial institutions, proclaimed that:

"Regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered" and allowed greater regulatory oversight "to encourage (in other words require) such institutions to help meet the credit needs of local communities in which they are chartered."

Banks with a low CRA ranking risked denial of applicaions (from regulatory agencies such as the FDIC and Federal Reserve) to lend in new markets, open new deposit facilities, and merge with sister financial institutions. This legislation passed despite staunch opposition from the banking industry, most likely with the expectation that it would remedy the "injustice" of the times.


5.) Under the adminitration of Reagan and Bush the first, this legislation was pretty much forgotten and laid dormant. However, that all changed after Democrat Bill Clinton ascended to the presidency. President Clinton significantly expanded the overall reach of CRA in order to achieve his "multicultural" home ownership goals. In fact, in November 2000, the Clinton HUD agency enacted new government regulations providing over TWO TRILLION dollars in mortgages for "affordable housing" for over 20 million otherwise putridly uncreditworthy families. This was the biggest EVER expansion of housing aid in our nation's history, with President Clinton using Carter's CRA as a precursor.

Clinton seemed to think that all Americans, regardless of their credit worthiness, were somehow "entitled" to own a home, irrespective of the risk that banks assumed by giving exorbitant mortgages, at initially subprime rates, to individuals who no bank in their right mind, prior to CRA, would have even considered for any type of mortgage whatsoever.


6.) Of course, in order to create the impression that a family making less than $50,000 per year somehow qualified for a $500,000 mortgage, a new revolution in the home financing industry was needed. And what was that revolution? You guessed it- SUBPRIME LENDING!!! Of course, Fannie Mae and Freddie Mac knew, deep down, that these mortgages would ultimately default. So what did they do? Remaining true to their original principles (see above), the mortgages were "repackaged" into mortgage backed securities, making the loans easier for lenders to sell. Which financial institution was the biggest buyer of these securities? WASHINGTON MUTUAL!!! As we all know now, WaMu is no more. It was seized by the FDIC last Thursday in the biggest bank failure in our nation's history.

In conclusion, starting from Fannie Mae's inception during the New Deal era, our nation's economy was on a runaway train to failure once "shit hit the fan" as it certainly has at this present moment. The Democrats were more concerned with "social justice" than our nation's economic well-being, and we now see where that has ultimately led us. Nonetheless, prominent congressional Democrats such as Nancy Pelosi and Harry Reid still insist, for whatever reason, on pointing the finger at Republicans. However, the facts don't lie. This current financial disaster has occurred due to a series of extreme economic gaffes by Democrat-controlled Congresses and Democrat presidents. Utopian idealism has been forced to concede to economic reality, and as we all know by now, the results sure aren't pretty.