Morning Dose Of Reality: Having It Both Ways

President Barack Obama scolded banks yesterday for not lending more money. Earlier, the Obama Administration lambasted banks for lending too much. The rationale then was that banks were greedy and careless by lending to much money to people without the means of actually repaying the loans.

What is most surprising about Obama’s tough talk on banks to lend more money in the face of the gigantic housing bubble that burst, is that he is working to repeat the same mistakes of sub-prime lending that got us to where we are today.

In Mid-October, Obama Launched An Initiative To Provide More Mortgages Backed By The Government. “The Obama Administration launched a new initiative Monday aimed at supporting affordable mortgages, backed by the federal government.”  (Michael O’Brien, “Obama Enlists Fannie And Freddie In Bid To Boost Mortgages,” The Hill’s Blog Briefing Room, 10/19/09)

“Several Cabinet Agencies Announced A New Program To Provide Assistance To State Housing Financing Agencies (HFAs), Administered In Part By The Government-Run Fannie Mae And Freddie Mac Companies.”  (Michael O’Brien, “Obama Enlists Fannie And Freddie In Bid To Boost Mortgages,” The Hill’s Blog Briefing Room, 10/19/09)

“The Program Puts The Government In The Interesting Role Of Using Fannie And Freddie, Which Were Taken Into Conservatorship Last Year In The Midst Of The Mortgage Crisis, Of Administering The Credit Lines To The State Agencies.”  (Michael O’Brien, “Obama Enlists Fannie And Freddie In Bid To Boost Mortgages,” The Hill’s Blog Briefing Room, 10/19/09)

You may recall we’re in a real mess over mortgages, specifically sub-prime mortgages. You may also recall how this whole fiasco got started when President Clinton and Democrats in Congress started social engineering the housing market.

In The 1990’s, The Clinton Administration Pressured Mortgage Giants To Take On Risky Loans To People With Low-Income And Bad Credit:

The Clinton Administration Altered The Community Reinvestment Act, Creating A Market For “Risky Sub-Prime Loans.” “The untold story in this whole national crisis is that President Clinton put on steroids the Community Reinvestment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but ‘predatory.’”  (Editorial, “The Real Culprits In This Meltdown,” Investor’s Business Daily, 9/15/08)

“[T]he Seed Was Planted In The ‘90s By Clinton And His Social Engineers. They Were The Political Catalyst Behind This Slow-Motion Financial Train Wreck.”  (Editorial, “The Real Culprits In This Meltdown,” Investor’s Business Daily, 9/15/08)

• “And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.”  (Editorial, “The Real Culprits In This Meltdown,” Investor’s Business Daily, 9/15/08)

In 1999, Fannie Mae Was Under Pressure From The Clinton Administration To Expand Mortgages To Low-Income People. “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.”  (Steven A. Holmes, “Fannie Mae Eases Credit To Aid Mortgage Lending,” The New York Times, 9/30/99)

Fannie Mae Moved To Ease Credit Requirements For Loans To “Low-Income Consumers.” “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.”  (Steven A. Holmes, “Fannie Mae Eases Credit To Aid Mortgage Lending,” The New York Times, 9/30/99)

Change In Credit Policy Made It Possible To Extend Loans To People Who Were Not Qualified. “The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.”  (Steven A. Holmes, “Fannie Mae Eases Credit To Aid Mortgage Lending,” The New York Times, 9/30/99)

Sub-Prime Loans To “Borrowers Whose Incomes, Credit Ratings And Savings Are Not Good Enough To Qualify For Conventional Loans.” “In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.”  (Steven A. Holmes, “Fannie Mae Eases Credit To Aid Mortgage Lending,” The New York Times, 9/30/99)

“Loans To People With Less-Than-Stellar Credit Ratings.” “By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.”  (Steven A. Holmes, “Fannie Mae Eases Credit To Aid Mortgage Lending,” The New York Times, 9/30/99)

Fannie Mae’s Move To Extend Credit To Those Who Did Not Qualify Considered Risky. “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times.”  (Steven A. Holmes, “Fannie Mae Eases Credit To Aid Mortgage Lending,” The New York Times, 9/30/99)

At The Time, A Government Rescue Was Predicted. “But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.”  (Steven A. Holmes, “Fannie Mae Eases Credit To Aid Mortgage Lending,” The New York Times, 9/30/99)

And Now We’ve Bailed Out Fannie And Freddie And The Cost Is Unpredictable:

Federal Bail Out Of Mortgage Giants Unprecedented; Ramifications Won’t Be Known Immediately. “These themes emerged over the weekend as mortgage specialists wrinkled their foreheads to determine what the federal bailout of the mortgage finance giants Fannie Mae and Freddie Mac will mean for consumers. They cautioned, however, that the unprecedented nature of the rescue makes it hard to know all of the ramifications immediately.” (Ron Lieber, “Fannie Mae, Freddie And You: What It Means To The Public,” The New York Times, 9/8/08)

“It Is Not Possible To Calculate The Cost Of Any Government Bailout.” “It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.  (Stephen Labaton And Andrew Ross Sorkin, “U.S. Rescue Seen At Hand For Two Mortgage Giants,” The New York Times, 9/6/08)

“Greatest Nationalization In History” Puts Taxpayers At Risk To Trillions In Debt:

“The Greatest Nationalization In The History Of Humanity.” “Economist Nouriel Roubini - who has been spot on with his predictions so far - called the Fannie Mae and Freddie Mac Freddie Mac takeover ‘the greatest nationalization in the history of humanity.’”  (Editorial, “Fannie Mae & Freddie Mac: Hedge Fund USA,” The Seattle Post-Intelligencer, 9/11/08)

U.S. Debt Increased By $6 Trillion. “The action increased the government’s public assets by almost $6 trillion and has increased its public debt and liabilities by another $6 trillion. The capital costs could top $200 billion. He says the government essentially has created the world’s largest hedge fund with a ‘debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).’”  (Editorial, “Fannie Mae & Freddie Mac: Hedge Fund USA,” The Seattle Post-Intelligencer, 9/11/08)

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