The 9-11/wartime Bush Administration is guilty of contributing to the Housing Crisis for political points with many demographics and to appease the Democrats hungering for domestic spending. President Bush is a convenient target and ripe for criticism, but Joseph Stiglitz and the Orszag brothers knew Banks were too big to fail. They reported Fannie and Freddie should take a bigger risk. By 2002, everything was already in place, and built to fail by the Democrat Party machine. That should be our focus.
Some Background on The Glass Streagall Act
1933 Glass-Steagall Act creates new banking landscape
|Following the Great Crash of 1929, one of every five banks in America
fails. Many people, especially politicians, see market speculation
engaged in by banks during the 1920s as a cause of the crash.|
In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve's control over credit.
The Glass-Steagall Act passes after Ferdinand Pecora, a politically ambitious former New York City prosecutor, drums up popular support for stronger regulation by hauling bank officials in front of the Senate Banking and Currency Committee to answer for their role in the stock-market crash.
In 1956, the Bank Holding Company Act is passed, extending the restrictions on banks, including that bank holding companies owning two or more banks cannot engage in non-banking activity and cannot buy banks in another state.
The Timeline of Change Accelerates
In August 1987, Alan Greenspan -- formerly a director of J.P. Morgan and a proponent of banking deregulation -- becomes chairman of the Federal Reserve Board. One reason Greenspan favors greater deregulation is to help U.S. banks compete with big foreign institutions.
In January 1989, the Fed Board approves an application by J.P. Morgan, Chase Manhattan, Bankers Trust, and Citicorp to expand the Glass-Steagall loophole to include dealing in debt and equity securities in addition to municipal securities and commercial paper. This marks a large expansion of the activities considered permissible under Section 20, because the revenue limit for underwriting business is still at 5 percent. Later in 1989, the Board issues an order raising the limit to 10 percent of revenues, referring to the April 1987 order for its rationale.
In 1990, J.P. Morgan becomes the first bank to receive permission from the Federal Reserve to underwrite securities, so long as its underwriting business does not exceed the 10 percent limit.
Dodd Franks Fannie-Trap
A bad law and bad administration rules will only make the housing crisis worse
"Ironically, about the only two firms Dodd-Frank doesn’t touch are the two most responsible for the crisis: the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. In their new book, Reckless Endangerment, New York Times financial columnist Gretchen Morgenson and market analyst Joshua Rosner write that Fannie “led both the private and public sectors down a path that led directly to the financial crisis of 2008.” At the end of the book, the authors note with dismay, as have many conservative critics, that the law doesn’t lay a glove on Fannie and Freddie."
Franklin Raines-Former Head of Fannie Mae and part of Obama2008 Campaign
Franklin Raines Bio at Wiki
Barney Frank on the Housing Market 2005 Barney Frank at Wiki
Thomas Sowell places blame on Greenspan, GW Bush and Barney Frank
Barney Frank on September 25, 2003: "I want to roll the dice a little bit more in this situation towards subsidized housing."
Rahm Emanuel Former Chief of Staff for Barack Obama Rahm Emanuel Wiki
Larry Summers the Deregulator and Conflict of Interest Lawrence Summers at Wiki
"The New Yorker website has a great catch this afternoon: a 57-page memo that Larry Summers wrote to Barack Obama to frame the debate over the stimulus. It's a long, detailed, fascinating report, but only one passage is underlined, or bolded, or italicized. In fact, it was so important to Summers, it got all three treatments. It's this one:
But it is important to recognize that we can only generate about $225 billion of actual spending on priority investments over next two years. and this is after making what some might argue are optimistic assumptions about the scale of investments in areas like Health IT that are feasible over this period.Here's why this passage was critical. The recession was so deep that it might require up to $1 trillion in stimulus, according to economists surveyed by Summers' team. But the federal government could "only generate about $225 billion of actual spending" in Summers' estimation. To fill the gap, the White House would have to rely on less-than-ideal sources of stimulus spending. Those sources were tax cuts and state relief. " Larry Summers and the Secret 57 Page Memo On Stimulus
(A majority of the stimulus money was spent knowing it would have little impact)
Too much on Larry Summers to squeeze into this already long blog.
Blaming President George W Bush for the crisis is in fashion for the Left. Trillions of dollars have been added to the debt with talks of stimulus and reform. The cause of the crisis and the major players remain obscured from view and relatively untouched by reform or prosecution. Motive and Opportunity. Transparency or stealth? Your Hope and Change is code for "Progress through Crisis" Gane ON and Game Over in 2012.