GOP chairman says regulations were 'root cause' of economic crisis
- 09/24/13 01:12 PM ET +The HillQuick background:'The Republican chairman of the House Financial Services Committee argued Tuesday in an op-ed that federal regulations helped create the financial crisis.
“The great tragedy of the financial crisis … was not that Washington regulations failed to prevent it, but instead that Washington regulations helped lead us into it,” Rep. Jeb Hensarling (R-Texas) wrote in an an op-ed published by American Banker.
Hensarling pointed to the Community Reinvestment Act, which he said required banks to “abandon their traditional lending standards” for a small number of home loans.
Fannie Mae and Freddie Mac also are to blame for the national housing meltdown, Hensarling said, noting that a large portion of the risky loans that led to the crisis were backed by Freddie and Fannie, who, in turn, were backed by taxpayers. '
Subprime mortgages have existed for decades. But they were a small percentage of the mortgage market (well under 10%), until Fannie and Freddie reduced credit standards to increase market share and meet low-income and minority home ownership targets mandated by Congress. By 2007, nearly 50% of all mortgages that originated in the U.S. were subprime, with Fannie, Freddie and other agencies guaranteeing about 70%. @CNNMoney December 20, 2011
President Clinton Takes Credit for Community Reinvestment Act Loans
' "Given their prominence in the market, investors and underwriters came to believe that if Fannie or Freddie touched a loan, it was safe, sound, secure and most importantly, 'sanctioned' by the government,” he wrote. “If anyone is looking for a root cause of the financial crisis, this is it.”
Earlier this month, President Obama marked the fifth anniversary of the crisis with a speech in which he touted his administration’s efforts to shore up the financial sector with needed regulations, many required by the 2010 Dodd-Frank Wall Street reform law.
“We put in place tough new rules on big banks, rules that we need to finalize before the end of the year, by the way, to make sure that the job is done," Obama said during remarks at the White House.
More than half of hundreds of rules required under Dodd-Frank are still in the works.
On Tuesday, Hensarling criticized the landmark law for failing to reform Fannie and Freddie.
“What you will find in Dodd-Frank, however, are provisions that make bailouts permanent, enshrine 'too big to fail' into law and give Washington bureaucrats more power, more authority and more control over personal financial decisions that Americans should be making for themselves,” Hensarling wrote.'
Former Democrat Rep. Barney Frank (Dodd Frank)blames LACK of regulation
Read more about the housing crisis:
CRATERED: Democrats Caused the Housing Crisis and Recession
