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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Friday, September 18, 2009

Not a conspiracy, just stupidity and politics.....

There has been a lot of yackity yack over what appears to be severe moral decay inside of the advocacy group ACORN as revelations that several representatives advised people on setting up illegal enterprises and activiites. This decay at ACORN is emblematic of the decay within American society where compromising traditional American values are being substituted for 'progressive' ones. The troubling revelations with this organization that involved advice on tax evasion and child prostitution is no surprise to me since these are 'progressive' values. One only has to look to the Obamessiah's cabinet picks and Democrats in Congress to find a coterie of tax cheats.

But the existence of an group like ACORN is even more insidious than the the somewhat nebulous 'values' argument that I use above. This group, one that laudably was an advocate for poor and 'oppressed', is also an advocacy group whose role is to support the Democrat political party and their candidates.

What is troublesome is that an organization like ACORN, that had been supported by groups such as the Catholic church(they dropped their support in 2008), where a real need was identified by caring people, is also getting significant amounts of funding directly and indirectly from the Federal Government. Not only has the government funded them with 10's of million of dollars of direct grants, but also has forced private companies to give funds to these groups in order to get favorable treatment when decisions are being made at the Federal Government level. How appropriate is it, that a group whose political position is to support Democrats and their election be supported through taxpayer dollars? Its one thing if they are supported by private donations but quite another when the funding comes from government coffers.

The deeper problem is also much more profound. For example, during the Clinton years, when there were a large number of mergers of financial institutions, the administration's justice department only allowed these mergers if the banks could prove that they lent mortgage money to ACORN's advocacy clientele and/or funded them directly with grants from these very banks.

As a requirement, these financial institutions had to own a certain amount of the well-known 'sub-prime' mortgages that are typical financing tool within the poorer communities...
At first, ACORN’s anti-bank actions were relatively few in number. However, under a provision of the 1989 savings and loan bailout pushed by liberal Democratic legislators, like Massachusetts Congressman Joseph P. Kennedy, lenders were required to compile public records of mortgage applicants by race, gender, and income. Although the statistics produced by these studies were presented in highly misleading ways, groups like ACORN were able to use them to embarrass banks into lowering credit standards. At the same time, a wave of banking mergers in the early 1990's provided an opening for ACORN to use CRA to force lending changes. Any merger could be blocked under CRA, and once ACORN began systematically filing protests over minority lending, a formerly toothless set of regulations began to bite.
So, lenders had to suspend typical standards in order to meet governmental social engineering goals. Of course, bankers do not make money by losing money on bad credits. Banks, generally loan money to home owners and then sell off most of the loans to the GSE's Freddie Mac and Fannie Mae but these organizations were unable or unwilling to buy these new low quality loans since they did not meet their statutory standards. So what did the government do, they changed the rules for the GSE's and required them to buy and hold these loans.....
This sweeping debasement of credit standards was touted by Fannie Mae’s chairman, chief executive officer, and now prominent Obama adviser James A. Johnson. This is also the period when Fannie Mae ramped up its pilot programs and local partnerships with ACORN, all of which became precedents and models for the pattern of risky subprime mortgages at the root of today’s crisis.
However, Pandora's box was already open. There was created a market for these loans, demand for financing using these loans increased and there was a need to recycle this kind of lending into investors hands since neither banks nor the GSE's were able to hold all of the loans generated through this pipeline so Wall Street securitized these products and distributed them. Everyone was happy; the government moved towards its social engineering goals, Wall Street made money distributing these products and the housing market was booming that increased employment. But all of this happened at a very big cost.

I also want to be clear here, the sub-prime market was not the cause, in my opinion, of the recent financial crisis, but government meddling in a market place that was efficient and effective in providing financing to home buyers definitely contributed to the problem. This meddling has been going on for 70 years, ranging from the creation of the GSE's to the mortgage interest income tax deduction leading to over investment in housing relative to other areas of the economy.

Quotes from here.

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