Banking has been heavily regulated, controlled, and manipulated for political purposes for many years. Creeping socialism has existed in the banking industry for decades. Occasionally, the "creeping" aspect has been replaced by giant leaps toward a socialist state. The Community Reinvestment Act (CRA) was more a "leap" than "creep."
The CRA, and a host of related government lending regulations, coerced (forced) banks to make marginal or bad loans to people with low-income, unstable income, and/or poor credit histories. By supporting these laws and regulations politicians pleased special-interest groups. Politicians were repaid for their efforts with large voting blocks.
I remember a meeting with the senior executive team of our bank in which federal examiners told us that we had to make a large number of "marginal loans." In this meeting the Chief Executive Officer (CEO), Chief Operating Officer (COO), and I (the Chief Financial Officer) sat in stunned silence as the federal examiners told us what we must do.
With a stack of loan files (loans we had planned to reject) in front of them, the federal examiners told us these "marginal" loans must be made to improve our CRA rating. While CRA did not mandate civil or punitive damages, CRA required a four-tier rating system with performance levels: outstanding, satisfactory, needs-to-improve, or substantial noncompliance. These ratings were made public. The bottom two ratings meant public outrage. Satisfactory was not "satisfactory" because some of our competitors were already advertising their outstanding rating.
Like hundreds of other banks around the country, we were forced to comply with the government's attempts at social re-engineering. Banks across America originated these loans and then sold them in the secondary market.
Many of these subprime loans were pooled (securitized) into bonds. Bonds backed by mortgage loans (mortgage-backed securities) became very popular investment vehicles. To help "improve liquidity in the secondary market" FHLMC (Freddie Mac) and FNMA (Fannie Mae), two government-sponsored organizations, stepped in to guarantee the securities (mortgage-backed bonds) with implied AAA ratings of the federal government. This meant we now had AAA-rated bonds backed by subprime loans flooding the marketplace.
http://www.campaignforliberty.com/article.php?view=12
Facebook
Twitter