Mortgage Crisis caused Worldwide Financial Meltdown

The home mortgage business was once the exclusive domain of the banking industry. Then, as with nearly every aspect of our lives that were once private affairs between citizens in America, the government decided to get involved in 1933. President Roosevelt established the Home Owners' Loan Corporation, as one of many New Deal bailout programs, to buy troubled mortgages from banks. Within a few years this government program had a payroll of over $26,000,000 in 1936 dollars—$388,000,000 today. 20% of the loans they issued ended up in default (with taxpayers' money) compared with the accepted standard rate of 3% in the home mortgage industry.

Within a dozen years 40% of all mortgages were guaranteed by the United States government with taxpayers' money. The foreclosures on these loans boomed by 500% during the 1950s. In the 1960s, President Johnson's Great Society passed laws to grant poor people government guaranteed home loans, one out of five of which went to welfare mothers in some major cities. The losses to the taxpayers of this policy was $1,400,000,000 in 1971 dollars as they were foreclosed at an astonishing rate of 1100% higher than ever before.

Then in 1977 Jimmy Carter signed into law the Community Reinvestment Act to force banks to issue home mortgages in poor, primarily black neighborhoods, with the guarantee that the government would back them up with taxpayers' money when loans were not paid back that were given to people who were not creditworthy. In the late 1980s ACORN exerted pressure that resulted in the government passing a law guaranteeing that 30% of all Fannie Mae and Freddie Mac loans go to low-income people backed by taxpayers' money.

Under President Clinton, Fannie Mae and Freddie Mac were forced to approve loans, with taxpayers' money, to people with lousy credit; with no money down; with monthly payments of 50% of their income—even if their only income was welfare paid to them from the earnings of working taxpayers. Pressured by Clinton, regular banks soon followed these same pitiful guidelines in 1994 with Countrywide Financial leading the way. Any bank that did not sign up was designated "racist" and we all know any corporation will do anything not to be branded with that pejorative moniker. Banks were told by the Federal Reserve that they must take into account the economic culture and extenuating circumstances of poor and/or black people and disregard bad credit. Soon the Congressional Hispanic Caucus jumped on the band wagon demanding Latinos be included in these insane mortgage loan policies even if they were new immigrants or even illegal immigrants. And so they were.

Small banks, very nervous about these mortgages that did not meet sound criteria, sold them to big banks who sold them to Wall Street and other investors around the world with the express condition they were guaranteed by United States taxpayers' money—earned by working or producing something toward the Commonweal. Meanwhile, from the 1930s until the current decade all of these new unqualified buyers caused an explosion in real estate prices—demand outstripped supply with resultant rising prices—causing virtually all real estate in America to be vastly overvalued.

When recession hit, as it always does eventually—caused largely because many of these same people (of the last thirty years) in power in our government shut down nuclear power plant building, making us dependent on foreign oil (but I digress)—millions of people were unable to pay for their mortgages. Small banks couldn't pay big banks; big banks couldn't pay investors—who by now included everybody with a 401K—and the world financial system collapsed.

There is a common thread throughout this whole sordid story. All of the people involved were Liberal Democrats.

So how do ignorant American voters respond? They buy into propaganda that it is the fault of President Bush and give Democrats complete power over our lives in the 2008 elections. I have a good friend who is a banker with Bank of America. I asked him a few days ago, "What exactly is the Obama plan for this crisis?" He said, "We are going to bail out the Fannie Mae and Freddie Mac borrowers." The same mistake favoring minorities who don't pay their bills that led to this crisis in the first place. That is when I decided to write this article.