Quote:
Originally Posted by oklavol  Bush names the Fed chairman, the Fed chairman sets interest rate that money is loaned to banks, banks sets interest rates to the consumers. When rates are lows consumers then respond by making loans. |
Who owns the Fed??
How do we get money to begin with??
Does any president have any say over what the chairman of the fed board does at any time??
Quote:
Originally Posted by oklavol God forbid we might actually blame the people in charge for anything. |
Thomas J. DiLorenzo professor of economics at Loyola College:
Excerpts:
The policy in question is the
1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call "communities of color" that they might not otherwise make based on purely economic criteria.
The
original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various "neighborhood organizations," as they like to call themselves, such as
"ACORN" (Association of Community Organizations for Reform Now).
These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that
at least $100 billion in such loans had been made in the first twenty years of the Act.
So-called "community groups" like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation.
The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA "protest" is issued by a "community group."
This
can cost banks great sums of money, and the "community groups" understand this perfectly well. It is their leverage.
They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.
Banks have been placed in a Catch 22 situation by the CRA:
If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters.
Then of course there is the issue of the
Fed’s monetary policy having created the housing bubble, characterized by a spectacular escalation of real estate values in every American city over the past decade or so. This created a further problem for the financial institutions that are victimized by the CRA.
They are forced to make a certain amount of bad loans, but because of the Fed-created explosion in housing prices, many thousands of subprime borrowers no longer qualified, by a long stretch, for conventional mortgages based on their incomes.
The only way these borrowers could qualify for their mortgage loans (even ignoring their bad credit ratings) was to take out
adjustable rate mortgages, some of which had astonishingly low first-year rates in the 3 percent range, and sometimes lower. This is what has largely fueled the subprime mortgage meltdown – the
inability of thousands of subprime borrowers to afford their mortgages now that their rates have adjusted upward.
Thus, the combination of the Fed’s enforcement of the CRA (with the help of political pressure groups like ACORN) and its post 9/11 monetary policy in general are the reasons for the bursting real estate bubble and the "subprime" mortgage meltdown.
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