Posted by
Always To The Right on Friday, October 10, 2008 1:31:58 PM
Another lengthy video attempts to highlight the beginnings of the
subprime loan disaster, and it’s well worth watching. Andrew Cuomo,
then Bill Clinton’s HUD Secretary, held a press conference on April 6,
1998, explaining a settlement reached with a major bank on a lending
discrimination case based presumably on the CRA. Cuomo brags about how
“this administration will enforce the law”, but he also makes a very
telling admission about the $2.1 billion in subprime loans that the
bank would offer as a result of the settlement:
They would not have qualifed but for the affirmative action on the part of the bank, yes.
He then admits that there would be “higher risk”, and a higher
default rate, on the loans the Clinton administration forced this bank
to make. He also admits that the action forced this bank to lower its
standards on loan qualification as a remedy to supposed discriminatory
action in the past by relying on income and equity requirements. Cuomo
describes everything wrong with subprime lending and reveals the
government’s efforts to distort private lending markets to force
“fairness” in outcomes.
The financial world did not collapse because of 15,000 loans from
this one settlement, but this case did not exist in isolation. Cuomo
held this press conference as a warning to all lenders that the Clinton
administration intended to enforce the CRA broadly with all
lenders, and in fact he explicitly stated this. When that didn’t free
up credit as quickly as Clinton desired, he and Congress mandated
Fannie Mae and Freddie Mac to purchase more subprime paper — which
Cuomo baldly admitted was riskier and would have a higher rate of
failures — and to turn them into mortgage-backed securities, which they marketed as low-risk investments based on implicit government backing.
This did what the heavy-handed enforcement of the CRA could not: it
made lenders enthusiastic about subprime lending. Why? They could
make short-term profit on every mortgage regardless of the borrower’s
ability to repay, because Fannie and Freddie would buy them anyway.
With the risk removed from lending, subprime loans became quick-buck
rackets for all lenders, predatory or not.
The second half of the video relates what we already know about
Barack Obama. He sued Citibank to force more subprime lending, and his
ACORN partners did the same elsewhere, initiating actions like the one
Cuomo heralds here as a great breakthrough in affirmative-action
lending. Obama bears responsibility at the edges for the beginning of
this disaster, and more for his inaction while in the Senate as Alan
Greenspan warned them of the coming collapse. Most of this falls on
the Clinton administration and Congress in 1998-2000, who set this
brush fire alight and then kept the firefighters at OFHEO at bay by
calling them racists.