[andywend]

Sunday, July 12, 2009

THE FACTS OF HOW DEMOCRATS DESTROYED U.S. ECONOMY

By Steve Cates on July 12, 2009 at 08:06 pm 3 Comments



Investors Business Daily shines a light on The Issa Report, authored by Representative Darrell Issa of California who is the ranking member of U.S. House of Representatives Committee on Oversight and Reform documents how it all happened:

• With an implicit subsidy to American homeowners in the form of reduced mortgage rates, Fannie Mae and its sister government sponsored enterprise, Freddie Mac, squeezed out their competition and cornered the secondary mortgage market. They took advantage of a $2.25 billion line of credit from the U.S. Treasury.
• Congress, by statute, allowed them to operate with much lower capital requirements than private-sector competitors. They “used their congressionally-granted advantages to leverage themselves in excess of 70-to-1.”
• The two GSEs were the only publicly traded corporations exempt from SEC oversight. All their securities carried an implicit AAA rating regardless of the quality of the mortgages.
• The Department of Housing and Urban Development set quotas for GSE investment in affordable housing.
• Encouraged by an inaccurate 1992 Boston Federal Reserve Bank study charging racial discrimination in mortgage lending, the two GSEs were strongly pressured to “lower their underwriting standards, particularly on the size of down payments and the credit quality of borrowers.”
• In 1992, Congress directed HUD to establish multiple quotas requiring mortgage quotes for low-income families.
• In 1995, the Clinton administration issued a National Homeownership Strategy, loosening Fannie and Freddie’s lending standards and insisting that lenders “work collaboratively to reduce homebuyer downpayment requirements.”
• The administration complained that in 1989 only 7% of mortgages had less than a 10% downpayment. By 1994, it wanted that raised to 29%.
• Reduced underwriting standards spread into the entire U.S. mortgage market to those at all income levels.
• A complete decoupling of home prices from Americans’ income fed the growth of the housing bubble as borrowers made smaller down payments and took on higher debt.
• Wall Street firms specializing “in packaging and investing in the lowest-quality tranches of mortgage-backed securities, profited hugely from the increased volume that government affordable lending policies sparked.”
• Wall Street firms, homebuilders and the GSEs used money, power and influence to block attempts at reform. Between 1998 and 2008, Fannie and Freddie spent over $176 million on lobbyists. • In 2006, Freddie paid the largest fine in Federal Election Commission history for improperly using corporate resources to hold 85 fundraisers for congressmen, raising a total of $1.7 million.

[DwightShrute]

[Data]

...Fannie Mae and its sister government sponsored enterprise, Freddie Mac, squeezed out their competition and cornered the secondary mortgage market. They took advantage of a $2.25 billion line of credit from the U.S. Treasury.

Great subject and a very informative post. Now we all know where this 14 trillion debt came from and why the price of food has doubled in the last few years while the real unemployment is pushing 20%.

[golfrulz]

to be fair and balanced BOTH parties are to blame;
1) The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world.
Once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors.
2)The second unhappy change in the American economy has been the extraordinary growth of our public debt.
This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts.
But in the end it was a new cadre of ideological tax-cutters who killed the Republicans' fiscal religion.
3)The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation.
But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives.
4)The fourth destructive change has been the hollowing out of the larger American economy. Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore.
It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street's shrinking economy — got only 12 percent.
"...it's a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever. "

[Data]

golfrulz, I was surprised with the quality of your post. It showed much more insight on the matter. Too bad it was copy-and-paste hack.

[golfrulz]

golfrulz, I was surprised with the quality of your post. It showed much more insight on the matter. Too bad it was copy-and-paste hack.

lol..much easier and faster to make a point and no spell check needed.

[THEGREAT30]

Bush and his wars destroyed the economy