Obama and the Democrats Lie When they Say Bush and the Republicans Caused the Current Economic Crisis:
Clinton’s Revisions to The Community Reinvestment Act, and his Expansion of Fannie and Freddie’s Low Income Lending Requirements Led to the Subprime Mess

In the beginning of the Bill Clinton administration, under pressure from Hillary Clinton, Bill Clinton had the Democratic-controlled Congress pass amendments to Carter’s 1977 Community Reinvestment Act (the “CRA”). These amendments increased the requirements on banks to make loans into low income neighborhoods and provided for the securitization of mortgages including those to low income persons (“Subprime Mortgages”). Clinton also raised Fannie Mae and Freddie Mac’s requirements to buy moderate and low income mortgages. See, “How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable,” Investor’s Business Daily, 9/25/08, p. 1, www.ibdeditorials.com. To get most of the Subprime Loans that Clinton, ACORN, Obama and other Democrats had forced the banks to make, off the banks’ books, Clinton’s legislation allowed the banks and Wall Street (read Rubin’s friends at Goldman Sachs) to securitize the mortgages in what are called mortgage backed securities (“MBS”). The MBS market was launched immediately and it rapidly turned into a multi-billion dollar market. MBS, including Subprime Mortgages, were sliced and diced and sold to the public, to mutual funds, pension funds, insurance companies, and hedge funds here and around the world.

Clinton’s idea of multicultural housing policy was to bring housing ownership to low income persons who could not afford to own a home (i.e. “were bad credit risks”) or in some cases they may have been discriminated against because of race or the poor neighborhood in which they lived. The mechanism was to require all Federally Chartered Banks to make loans into poor neighborhoods, and banks that did not meet the requirements of the CRA could be barred from opening branches or merging with other banks, thus limiting their growth prospects. Four government agencies audited the banks to determine their CRA Rating, making the CRA rating more important to the Clinton Administration than the banks’ own credit rating. Community groups, such as ACORN, could bring lawsuits to enjoin proposed mergers, if ACORN or another community group did not think that the banks involved had made enough loans into poor neighborhoods. Obama represented ACORN as an attorney and taught ACORN leaders the intimidation methods that ACORN used to extort banks into making loans to people who couldn’t pay them back. So Obama was very much part of the cause of the Subprime Mess. In fact, his very first act when he became a US Senator was to vote to support the Democratic filibuster that prevented Bush and McCain from improving the controls of Fannie and Freddie.

The CRA sounded like a noble idea to many, and anyone who opposed it was labeled a racist. Investors Daily Business (IBD) has written a series of articles on how the CRA, Fannie Mae and Freddie Mac led to the subprime mess, starting on September 23, 2008 on page 1 with an article entitled “’Crony’ Capitalism Is Root Cause of Fannie and Freddie Troubles,” search: www.ibdeditorials.com.

After the Republicans took over Congress in 1995, Clinton decided to increase the low and moderate income lending requirements of Fannie and Freddie though administrative agencies, rather than dealing with an uncooperative Republican Congress. In 1995 Clinton ordered his Treasury Secretary, Robert Rubin to rewrite the CRA Rules. The rewritten rules increased the numerical quotas and added new measures for “diversity” in the banks’ loan portfolios. Id., “Clinton-Era Rewrite.” After Andrew Cuomo became Clinton’s Secretary of Housing and Urban Development (1997-2001), Clinton got Cuomo to raise the low and moderate income lending requirements of Fannie and Freddie again and to reduce the capital requirements to 2.5% vs. 10% for banks. See, e.g. Id.

The stage was set for Clinton’s appointments of Jim Johnson and Franklin D. Raines, sequentially, as the head of Fannie. There are strong indications that both men played fast and loose with Fannie’s books and took out millions of dollars in compensation. Raines stretched the debt-to-equity of Fannie and failed to write off non-performing mortgages to maximize the value of his bonus and stock options. The Democrats, including Obama, Dodd and Frank, received very large campaign contributions from Fannie and Freddie, so that the same Democrats who should have been regulating Fannie and Freddie, instead protected them from all attempts of Bush, McCain and the Republicans to reform Fannie and Freddie.

The Fannie and Freddie total portfolio of mortgages exceeded $5.4 trillion. When the mortgages they insured are also considered, they wound up standing behind approximately 90% of the mortgage market. See, Id. “’Crony’ Capitalism.” After Raines finally left Fannie in 2005, multiple audits kept finding more and more financial problems in Fannie’s financial statements. Fannie was not able to file reasonably clean financial statements until early 2008. Both Jim Johnson and Franklin Raines, who mismanaged Fannie and, if justice were to be served, probably should be in jail, instead have served as economic advisors to Obama. Id.

We now know that Clinton, Rubin, Cuomo, Raines, Obama and the Democrats in Congress are responsible for the failure of Fannie and Freddie and the Subprime Mess that brought the economy down. They are responsible because they voted for the CRA, its revisions, and the Fannie and Freddie amendments and they protected Fannie and Freddie and the Democrats’ cronies who were mismanaging them. Obama is particularly responsible for the massive subprime loans, because he trained ACORN leaders to intimidate banks to make bad loans. Now that you are armed with the facts, when the Democrats shout they the inherited the economic mess from Bush and the Republicans, be sure to call the Democrats the liars that they are.