Global Financial Crisis - How it Started
Friday 10 Apr 2009
IRVINE, CALIFORNIA (MNS) - Peter Roff, a Fellow at the Institute for Liberty and a Former Senior Political Writer for United Press International (UPI) has just completed a study into the cause of the current financial crisis. Roff says that it all started under the Clinton Administration in 1994, when the Home Loan Secondary Market Program (HLSMP) was established by a group called the Self-Help Credit Union.
The HLSMP’s stated purpose is to help people who don’t have enough assets to qualify for traditional mortgage financing to get a home. This is a worthy goal. But the Self-Help Credit Union then turned around and sold those mortgages in the securities markets to investors — which in turn gave banks access to new funds so they could make additional loans.
Supposedly Helping Poor People
At the time, Self-Help President Martin Eakes said his program was helping “hardworking, bill paying, low-income and low-wealth people who may not meet conventional mortgage standards but have income sufficient to support monthly home loan payments.” But, as we now know, Roff says, it did so much more.
Self-Help got a $50 million grant from the Ford Foundation and entered into a partnership with Fannie Mae to make a nationwide test of the program — to the tune of about $400 million in loans from select national and regional banks each year for five years.
The national test led to Fannie buying and securitizing $2 billion in loans that were actually made by Bank of America, Chase Manhattan, Nation’s Bank, Banc One, and Norwest but then sold to Self-Help — so that Self-Help could resell them to Fannie Mae! This gave the original lenders a way to sell and offload the risk for non-conforming loans and other products they could not sell to Fannie directly. And then it was off to the races.
Bad Securities ruined Everything
It’s confusing, Roff says, and it only gets more so as the program continued to expand and bad securities worked their way into investment portfolios all over the United States — leaving a lot of institutions saddled with bad debt that, in many cases, they never should have been allowed to securitize or possess in the first place. And don’t forget the pressure the Department of Housing and Urban Development placed on lenders once the Clinton administration expanded the terms of the Community Reinvestment Act.
Selective Witch Hunting
All this has been swept under the proverbial rug, Roff says, while busloads of MoveOn.org activists travel through exclusive neighborhoods in Fairfield County, Connecticut looking for people who got bonuses from AIG, bonuses that the Obama administration and the Democrats who control the Congress originally said it was okay for them to get.
But these same buses, or any buses for that matter, Roff says, aren’t pulling up in front of the homes of Freddie and Fannie executives like former Clinton budget director Franklin Raines or former Obama campaign advisor James Johnson, both of whom left Fannie with millions in legally acquired lucre in their own pockets. Nor are these busses showing up in front of the home of Herb and Marion Sandler, who founded the Center for Responsible Lending and who, in advance of the housing bubble’s burst, sold their company, Golden West Financial, to Wachovia for more than $2 billion. And, yes, we all know how that turned out. Wachovia ended up so badly exposed by the transaction that it had to be acquired by Wells Fargo in order to keep its doors open.
And so, Roff says, that as the Obama administration and the Democrats in Congress continue to move ahead with their efforts in increase Washington’s control of Wall Street, we would all do well to at least ask them to take a good hard look at the way we got in this mess to begin with. It may just be that the last thing we need is more government since it looks like the government had a lot to do with causing this mess in the first place.
