Bill Clinton’s Role in the Current Economic Meltdown

Bill Clinton could quite possibly be single-handedly responsible for the real estate boom and subsequent bust.

Don’t believe me?

Here’s an email to my mother that I copied and pasted onto this page, after she sent me a link to a blog post that stated that Bill’s Clinton’s expanding of the Community Reinvestment Act in 1995 has absolutely nothing to do with our current economic situation.

I’ll let you be the judge.  After you’ve read it, go to this website, where you’ll find a full account of a subcommittee hearing on Clinton’s then-proposal for the CRA.

______________________________________________________________________

Mom,

That whole article is a bunch of fluff.  I’ll tell you why…

It’s true that the CRA (when it was introduced) was a good thing.  However, when Clinton got his paws on it in 1995, he basically created a quota system for loans in ‘underserved’ communities.

See this, directly from a website that lists the economic “accomplishments” of the Clinton Administration:

Strengthened the Community Reinvestment Act. In 1995, the Administration updated the Community Reinvestment Act regulations to focus on banks’ actual service delivery, rather than on compliance efforts. From 1993 to 1998, lenders subject to the law increased mortgage lending to low- and moderate-income families by 80 percent—more than twice the rate they increased mortgage lending to other income groups.

See it for yourself, here.  (Click the link, you have to go halfway down the page to see it.)

There’s plenty more where that came from. The following is from the Board of Governors of the Federal Reserve System, written by none other than Ben Bernanke in March of 2007:

Also, the preemption of usury laws on home loans created more scope for risk-based pricing of mortgages. Securitization of affordable housing loans expanded, as did the secondary market for those loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a percentage of their activities to meeting affordable housing goals (HUD, 2006). A generally strong economy and lower interest rates also helped improved access to credit by lower-income households.

Bankers were also gaining experience in underwriting and managing the risk of lending in lower-income communities. After years of experimentation, the managers of financial institutions found that these loan portfolios, if properly underwritten and managed, could be profitable. In fact, a Federal Reserve study found that, generally, CRA-related lending activity was at least somewhat profitable and usually did not involve disproportionately higher levels of default (Avery, Bostic, and Canner, 2000; see also Board of Governors, 1993). Moreover, community groups and nonprofit organizations began to take a more businesslike, market-oriented approach to local economic development, leading them to establish more-formalized and more-productive partnerships with banks. Community groups provided information to financial institutions on the needs of lower-income communities for credit and services, offered financial education and counseling services to community members, and referred “bankable” customers to partner banks. Specialized community development banks and financial institutions with the mission of providing financial services and credit to lower-income communities and families emerged and grew.

The CRA regulations adopted in 1995 established for large institutions a three-pronged test based on performance in the areas of lending, investments, and services. While the regulations placed the greatest emphasis on lending, they encouraged innovative approaches to addressing community development credit needs. Several provisions were included to reduce compliance costs, among them a new rule that allowed small banks to meet their requirements by means of a streamlined examination focused on lending activities.9

And how exactly would they classify “innovative approaches to addressing community development credit needs”?  Could it be, ‘creative lending’?

Now here’s some interesting reading…  This comes from a transcription of a hearing before the subcommittee of Consumer Credit, Finance, Banking, Finance and Urban Affairs, as they gave testimony regarding President Clinton’s CRA proposal.  This hearing took place on February 8, 1994:

Mr. Knollenberg: Thank you, Mr. Chairman.

I recall some of you back as repeat witnesses. I look forward to the testimony. And while I wholeheartedly support the idea of expanding capital access in the traditionally underserved areas, I do have some general questions or concerns about the CRA proposal in question.

It seems to me that the proposal subtly changes the proposal and the basis of a CRA rating for banks, and the results do concern me. And while this may seem like a change that is prudent on the surface, on the face, I am concerned that the act might act as an incentive for banks to engage in unsafe lending practices to simply improve their rating.

Our first responsibility is to protect the taxpayer at large in any kind of financial instability.

So with that in mind, I look forward to your testimony; and I appreciate the opportunity to make the statement.

[Emphasis added]

But there’s more…Check out this emotional statement from the Comptroller of the Currency (frightening), who supported Clinton’s proposal wholeheartedly:

STATEMENT OF EUGENE A. LUDWIG, COMPTROLLER, OFFICE
OF THE COMPTROLLER OF THE CURRENCY

Mr. LUDWiG. I am honored to be here. I appreciate this oppor-
tunity to discuss the proposal published for public comment by the
four Federal banking agencies to reform the Community Reinvest-
ment Act regulation. I have a detailed written statement that de-
scribes the proposal. In the interest of time, I would also like the
statement submitted for the record. I would like to submit for the
record the text of an address on CRA that I delivered yesterday to
the National Community Reinvestment Coalition.

Mr. LaRocco. Without objection, they will be entered into the
record.

[The information referred to can be found in the appendix.]

Mr. LUDWIG. To me, Mr. Chairman, community reinvestment is
not some vague abstraction. I know, not from analysis but from
personal experience, how important credit can be in the life of a
community and in the lives of individuals.

My father was the son of an immigrant and a son of the Great
Depression. My father wanted to be a country doctor. Without bank
credit, achieving this dream would have been impossible. Bank
credit permitted him to fulfill his dream and go on to serve the
community of York, Pennsylvania, through a free medical clinic
and in many other ways over a period of 60 years.

My father’s dream, the dream of a better life for his family and
of contributing to his community, is an American dream — one ful-
filled by the fathers and grandfathers of many people in this room.
Tens of millions of Americans today, affluent and poor, have a simi-
lar dream.

In our market economy, access to credit determines whether
many, perhaps most, people can fulfill their dreams of a better
life — whether they can go to school, whether they can start a busi-
ness. Credit alone may not be sufficient to turn millions of Amer-
ican dreams into reality, but it is necessary for that to happen. For
small business owners in particular, access to credit often means
the difference between having a great idea and a grand opening —
between having a going concern or a going-out-of-business sale.

I know you understand this, Mr. Chairman — you have been a
fighter for equal access to credit, and the availability of credit, so
that our people can fulfill their dreams and contribute to their com-
munities. I know you appreciate how important it is to reform CRA
so that it can fulfill its promise.

President Clinton understands the critical need for CRA reform.
During the 1992 Presidential campaign, he had heard strong com-
plaints from bankers and community leaders that CRA had fallen
short of its promise — that it was administered through a regulatory
framework that emphasized process over results. Rather than mak-
ing loans, the current system directed banks to produce mounds of
useless paperwork that documents meetings and board actions and
telephone calls.

Last July, the President instructed the banking regulators to re-
form the CRA process so that it would work as it was intended.
President Clinton told us he wanted results. He challenged us to
reform CRA so that we would have a system that would evaluate
banks on what they did, not what they said.

As you know, from the very beginning of the reform process, we
regulators have been dedicated to a painstaking process of con-
sultation and deliberation so the final product would be right. Be-
fore we made a single decision on reform, we turned to the public
for direction.

We held a series of hearings throughout the country — ^hearings
in Washington, Los Angeles, San Antonio, Albuquerque, Chicago,
New York City, and Henderson, North Carolina — the most exten-
sive series of hearings ever held on CRA. In these hearings, the
heads of the OCC, the Office of Thrift Supervision, and the Federal

Deposit Insurance Corporation and Federal Reserve Governor
Lindsey heard more than 250 witnesses. We recorded thousands of
pages of testimony. We walked through south central Los Angeles
and low-income neighborhoods in New York to see with our own
eyes and to listen with our own ears to what should be done. We
talked with representatives of the Navajo Nation, to bankers, large
and small, to poor people in rural America. What we have heard
and what we learned both corroborated what the President had
heard and shaped the reform package we proposed. Virtually every
witness strongly criticized the current system. They complained
that the current system was subjective and that it focused on effort
and not on results. Most witnesses wanted results. Community
groups, as well as individuals, wanted credit, services, and invest-
ments. Banks, especially small banks, wanted relief from useless
regulatory burden.

My point in describing our deliberative process, Mr. Chairman,
is simple. Far from avoiding comment on CRA reform, we have,
from the very beginning, sought it out. And, we are still seeking
it out. We welcome it. That was one reason that we extended the
comment period on our proposal. We want to encourage public par-
ticipation and meaningful analysis because both will benefit
reform.

The comment so far has been constructive, and we anticipate re-
ceiving more constructive comment. We want to do it right, and so
we are willing to take the time and to make the effort to do it
right. If our proposal were perfect, we would not have had to put
it out for public comment. Public comment is intended to be a
stress test that will reveal flaws and imperfections. Public com-
ment is just as essential to perfecting the proposal as our public
hearings were to developing it.

Mr. Chairman, we will be just as attentive to how we implement
the final rule, to writing detailed examination procedures, and to
training our examiners as we were to developing the proposal. We
are dedicated to making CRA reform work in practice as well as
in theory. Along the way we will have to address a host of manage-
rial problems: How to provide the most effective examination train-
ing; what specific procedures the examiners will use to evaluate
small banks; how to evaluate bank-generated CRA plans. In this
way, our CRA proposal is not unlike other regulatory initiatives —
setting broad outlines and goals first. We will then fill in the
details.

We will get the job done. And we will get it done expeditiously.
Just as our proposal is aggressive, the final product will be aggres-
sive. It will aggressively address the real problems of real people
who are now underserved, or unserved, in communities throughout
the country.

Thank you, Mr. Chairman. I look forward to answering your
questions.

____________________________________________________________________

So…what do you think, folks?  Go and read the text on the entire hearing.  Again, you can find it here.

Let me know your thoughts.

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