It’s not often a government, any government, admits how incompetent it’s been for so many years, but the Consumer Financial Protection Bureau (CFPB) has done just that. They have also, unwittingly, laid out the argument against government interference and intervention in the engine of America, the private sector marketplace.
The AP recently reported, “Federal regulators for the first time are laying out rules aimed at ensuring that mortgage borrowers can afford to repay the loans they take out. The rules unveiled Thursday by the Consumer Financial Protection Bureau impose a range of obligations and restrictions on lenders, including bans on the risky ‘interest only’ and ‘no documentation’ loans that helped inflate the housing bubble.”
“Lenders will be required to verify and inspect borrowers financial records. The results discourage them from saddling borrowers with total debt payments totaling more than 43% of the persons annual income. That includes existing debts like credit cards and student loans.”
“CFPB director Richard Cordray, in remarks prepared for the event Thursday, called the rules, ‘the true essence of responsible lending’.”
So you may ask yourself; self, if this is the first time they (the government) have insisted on these “new” rules, what have they been doing all these years?
Have the feds simply had a “hands-off” approach regarding lenders? Is that the reason for the mortgage crisis and subsequent meltdown?
For all these years the federal government has stood by and allowed evil “big banks” to use predatory lending practices to prey on the innocent and unsuspecting homebuyer.
Well, that’s not exactly how things have been. As a matter of fact, it’s pretty much the polar opposite of what I just described.
Interventionalist “Nanny” government policy always begins with progressive administrations. Thus it was with Jimmy Carter. Jimmy Carter’s is the administration that gave us the “Community Reinvestment Act” (CRA).
As progressives are always wanting, Carter’s plan was, through the force of government, to provide “affordable housing” to those he deemed less fortunate. According to progressives, the government is both arbiter of what is fair and can always fix any problem. And you see, it’s simply not fair to deny people the right to affordable housing. Progressives are all about fairness, ya know.
As one would expect, during the Reagan years, Carter’s grand plan just languished in the shadows. It wasn’t until the progressive Clinton administration that the CRA got legs. Actually, more like wings or a jet pack.
Clinton rediscovered Carter’s plan and pumped it full of steroids. Through the power of his Justice Department and his stooge Janet Reno, he forced banks to offer mortgages to those who could not afford to purchase nor had a prayer of paying back the loan.
Reno threatened banks with regulations and stiff penalties, to make these loans, so the banks, in turn, were forced to come up with ways to make the mortgages more palatable, such as “interest only” and “no documentation” loans. If one were of a “preferred” class, one would not even have to prove he or she was employed.
All this, so the Clinton administration could show the voters how, under Bubba”s rule, the American dream of owning a home could be realized.
So where did that leave the banks? In a mighty tough spot!
The government forced them to make loans and thus they got stuck with a lot of worthless mortgages from people who couldn’t pay them.
Well, the banks could not just sit on this worthless investment. So with the aid of the corrupt quasi-government run Fannie Mae and Freddie Mac, the banks packaged the loans together and called them “Mortgage Backed Securities” (MBS).
The banks then sold these “investments” to unsuspecting buyers who thought they would have a nice steady and stable income stream. Of course the buyers were wrong and upon discovering they had been duped, they simply repackaged the MBS’s and resold them. Eventually the scheme ran its course and there were no dupes left to sell to.
During this time the George W Bush administration tried to clamp down on Freddie, Fannie and the banks, but were descended upon by powerful Democrats such as Barney Frank, Chris Dodd and Maxine Waters. The dems claimed that all was well and those trying to solve the problem and stop the easy money practice just wanted to deny minorities the American dream, homeownership.
That, in a nutshell, was the cause of the housing crisis and subsequent financial meltdown that continues to plague us. All those hundreds of billions of dollars (if not more) in bank bailouts are due to an activist government playing favorites with our money.
As an aside, if you, like me, had to endure an anal exam to purchase a home during that same, easy money era, you can be sure you were not of the favored class. You were most likely employed, not on welfare or collecting food stamps, as many were who received these government mandated loans.
So now, as they always do, the government wizards of smart have stepped in to attempt to remedy a problem they themselves caused.
Although they most certainly don’t realize it, at least this time our government has admitted it was the cause of our country’s financial meltdown.