GEORGE BAILEY!!!! If you don't give that nice young family a "creative loan" for this megamillion house...I WILL RIP OFF YOUR HEAD AND EAT YOUR BRAINS...RIGHT NOW!
Thomas Sowell tells a fascinating tale on today’s unfurling economic disaster. He digs deep and finds the roots starting way back in the era of the last gloom and doom and malaise administration, the Carter White House:
The Community Reinvestment Act of 1977 directed federal regulatory agencies to "encourage" banks and other lending institutions "to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions."HUD and the Department of Justice began suing mortgage lenders to force them to lend to these low- and moderate-income applicants (yes, there’s a racial undertone here to the government’s goal…but of course!). Government regulators, naturally, then began refusing to approve business decisions that required regulatory sign off for these lenders if they were under (government) investigation for not anteing up good stats on loans for low-income or minority home-wanters.
That sounds pretty innocent and, in fact, it had little effect for more than a decade. However, its premise was that bureaucrats and politicians know where loans should go, better than people who are in the business of making loans.
The real potential of that premise became apparent in the 1990s, when the Department of Housing and Urban Development (HUD) imposed a requirement that mortgage lenders demonstrate with hard data that they were meeting their responsibilities under the Community Reinvestment Act.
What HUD wanted were numbers showing that mortgage loans were being made to low-income and moderate-income people on a scale that HUD expected, even if this required "innovative or flexible" mortgage eligibility standards.
That pressure grew under the Clinton and Bush administrations, and the inevitable friggin' asinine result was:
Mortgage loans with no down payment, no income verification and other "creative" financial arrangements abounded. Although this was done under pressures begun in the name of the poor and minorities, people who were neither could also get these mortgage loans.With the relaxed lending standards, just about anyone could have that million dollar home with a bit of creative financing -- that would then balloon to an unsustainable payment in the very near future.
Naturally (Hello, McFly!)...the bottom fell out -- and the people who bought overpriced homes without the means to pay for them in the first place defaulted on their mortgages, one after the other after the other.
Hello...financial disaster. Credit crunch. Business shrinkage (and failure). Layoffs...and more loan default.
Way to Go, federal government!
So when people go around blaming “greedy bankers” for today’s economic crisis (by “people,” of course I mean Zombies…otherwise known as Democrats), claiming that government intervention is the only way to fix the problem, we should remember their melodrama as being every bit as pointless (yet entertaining, in a "you are so silly" sort of way) as Jim Carrey’s classic Liar Liar scene (parodied beautifully here by Family Guy’s Peter Griffin):