A key bill involved in this mess is the Community Reinvestment Act (CRA) originally passed in 1977 and tweaked many times depending on which way the political wind was blowing. It was originally intended to address the deteriorating conditions of American cities—particularly lower-income and minority neighborhoods, essentially through lending of funds. CRA was amended many times to strengthen it which in essence put pressure on lenders to make risky loans to high risk recipients. This "strengthening" by lawmakers was the primary driver to the subprime mortgage crisis. The lending institutions were doing exactly what they were being forced to do. You get what you measure. If you incentivize companies to provide mortgages to low-income families, that's what you're going to get.
Also important is the Glass-Steagall Act of 1933. One of the important things the Act did was to separate banks into types of business, Commercial, Insurance and Investments. One of the major reasons this Act was introduced was "to minimize/prevent conflicts of interest in granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses that originally produced the Act." Pretty important don't you think?
In 1999 (Clinton administration) the Gramm-Leach-Bliley Act, also known as the "Financial Services Modernization Act" was passed repealing the Glass-Steagall Act removing the limitation on banks operating multiple businesses in the areas of commercial banking, insurance and investments. Prelude to a fall and rushed amid midnight dealings. Clinton promised to sign the bill stating "When this potentially historic agreement is finalized, it will strengthen the economy and help consumers, communities and businesses across America." To date, Clinton does not regret signing the bill. Absolutely amazing.
Now some might point out the bill was passed by a republican majority, BUT not only did an overwhelming democratic majority support it, it was signed by Clinton! If he didn't like the bill or thought it a bad bill, it was his job to veto it. As long as we're blaming presidents, Clinton is at the top of the list for setting this into motion.
John Dingell, the ranking minority member of the House Commerce Committee at the time stated "There's been a great rush to create financial institutions that are at the same time too big to fail, too big to bother, and too big to care." Folks, this economic disaster was predicted at the time this bill was signed into law!
Opponents to the repeal of the Glass-Steagall Act cited the following reasons:
1. Conflicts of interest characterize the granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses that originally produced the Act
2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.
3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.
4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).
Reasons which to date, have demonstrated to be not only very sound, but unfortunately, very real risks as each have come to pass. Our very lawmakers are the ones responsible for the current economic catastrophe. Republicans for crafting the repeal and Democrats (including Clinton) for either going along with it or signing it into law. democrats had many opportunities to right this and crying now by pointing fingers at Republicans for submitting the bill is truly a case of the pot calling the kettle black.
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