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What the AIG bailout, CRA, and Glass-Steagall have to do with you

Updated on May 18, 2012

Repealing glass-steagall Act had nothing to do with giving poor people mortgages- it made it so that insurance companies, banks, and anything else could all melt into one mega-financial institution, and it was the brainchild of McCain adviser/potential McCain treasury Secretary Phil Gramm.

What your dad is presumably talking about is stuff like the Community Reinvestment Act, which was signed into law in 1977. The Clinton administration made changes, and the Bush administration made changes, which I'm going to guess the GOP is not talking about.

So, bottom line, are these bad loans? Well, in November of 2000, the Cleveland Fed did a study and found that CRA loans were a little less profitable, and marginally more at risk of delinquency and default (more the former than the latter, which isn't the worst). I don't have all morning, but I wish I had more time to look into this.

Chappelle on the iPhone
Chappelle on the iPhone | Source

Turns out that CRA, not Steagall, that helped this crisis occur. The Community Reinvestment Act was tweaked by both Clinton and Bush to increase home ownership among America's negro and mestizo populations. Other legislation, such as the "Fair Housing Act", also had similar aims. This legislation pressured the mortgage industry to give loans to blacks and mestizos with poor credit and finances. This was a driving force behind the subprime crisis.

Bottom line is, both Bush and Clinton are on the record promoting home "affordability", one more recently than the other. Clinton was in the bank's pockets, too, and of the many, many reasons for the crisis (inflationary Fed policy under Greenspan, poor enforcement of existing regulations, accounting shams, condo-flipping as a career option, etc) the minor deviations in performance for loans to working poor minorities, especially as traced to mid-90s changes in related laws, are probably not that high up. Can't you and your dad agree that there are a bunch of scam artists in any business where you can get rich overnight, and that the banks bought off both parties in order to keep the orgy going?

But the yammering heads on the right are usually talking about the Community Reinvestment Act... The changes Clinton made were significant, and should have seen increased oversight later (and the regulators intended to in 2002) as its effects (in tandem with the repeal of Glass-Steagall) were better known. Instead, Bush juiced it up with even less regulation... nothing like a modest de-regulation for the sake of growth being co-opted for the sake of greed... especially when you can dump blame on the "entire system" rather than the parties actually at fault. So this "Diversity Recession" blames fault on Minorities, not those in Washington who can't help but point fingers instead of having actual ACCOUNTABILITY. Clinton publicly said his changes to the Community Reinvestment Act needed to create new regulations in the coming months that would work for the new century. Of course the republican's who claimed they would do this, promptly ignored the whole issue of new regulations once Clinton signed it. Basically he was punked by congress, and we get Diversity Recession.

"The diversity recession". I like that. Sounds like a great way to pin the blame on the most powerful economic force in the United States, poor minorities. That way, you don't feel bad for bailing out the horribly mistreated banks - they were fooled by those tricky poor people! Who knew you couldn't math away your risk? Not the banks, for sure.

It was Bush deregulation who let up the reins/forgot to rein in enforcement surrounding Community Reinvestment Act-related lending... It is fine to ease requirements in some areas, provided there is adequate oversight... the fact is Clinton got the ball rolling, but the brakes were supposed to be built in... and the Bush administration never bothered to use them (in fact he took them out all together).

And then of course, you have Phill Gramm (mentioned at the top of his article) and McCain in his corrupt role in the last major banking collapse that occurred the last time the Republicans went 8 years in control. LINK FOUND HERE, and 2008 graph to the right.

And for Phil, he snuck in a rider to his bill in the wee hours that created CDO's and Credit Default swaps with zero regulatory oversight as to how the greedy bankers would use these "weapons of financial destruction" as Warren Buffet named them. That is what took 90 Billion off AIG's market cap in 3 days and it was all Republicans controlling all 3 branches of Government while Wallstreet went wild selling these fraudulent timebombs to the world. for more on Phil Gramm's Bill visit THIS LINK and be sure to check out SUBPRIME 1-2-3 graph at bottom-right of article. and remember, McCain wants this man as Treasury Secretary.

The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance. That includes the rescue of investment bank Bear Stearns in March, the takeover of mortgage giants Fannie Mae and Freddie Mac earlier this month and the takeover of the world's largest insurance company, American International Group, just this week.

Less Regulation? YES PLEASE!!!! (yes this is sarcasm, deregulation is what got us into this mess.)

Rick James, Clayton Bigsby, and Tyrone Biggums, now in the AppStore!
Rick James, Clayton Bigsby, and Tyrone Biggums, now in the AppStore! | Source

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