It is an accepted fact that the political goal of affordable housing for everyone was one of the drivers of last fall’s financial meltdown, because so many home loans were made to people who had no hope of repaying them. The Treasury Secretary admits it. So what does the President do? From OpenMarket.org, Obama Seeks to Mandate More Risky, Low-Income Loans by Banks, in New Financial Rules
The President has just announced proposals for a major overhaul of the financial system. The proposals would force banks to make even MORE risky loans to low-income people. Even liberal newspapers like the Village Voice have admitted that “affordable housing” mandates are a key reason for the housing crisis and the massive number of defaulting borrowers. But Obama will not accept this reality. Instead, he wants to create a new “Consumer Financial Protection Agency” to rigorously enforce regulations pressuring banks to make loans to low-income borrowers, such as the Community Reinvestment Act. (Obama once represented ACORN, which pressures banks to make risky loans).
In explaining why there is supposedly a need for this new agency, when other agencies already enforce the Community Reinvestment Act and fair-lending laws, his regulatory blueprint complains that “State and federal bank supervisory agencies’ primary mission is to ensure that financial institutions act prudently, a mission that, in appearance if not always in practice, often conflicts with their consumer protection responsibilities.” (Pg. 54).
In other words, the power to force banks to make low-income loans should be given to an agency that has no duty to ensure prudent lending or to take into account the effects of such requirements on banks’ stability or viability.
Federal regulators did such a good job last time, he wants to give them even more power:
The President also wants to give financial regulators the power to seize key companies to prevent real or imagined “systemic risks” to the financial system. These are the same federal regulators who used the AIG bailout to give billions in unnecessary payments to Goldman Sachs, which neither needed nor expected that much money, and forced Freddie Mac to run up $30 billion in losses to bail out deadbeat mortgage borrowers. This is the same federal government that took over Chrysler and General Motors, and then used them to rip off pension funds and taxpayers and enrich the UAW union.
Banks are between a rock and a hard place when it comes to making loans in low-income areas:
Banks get sued for discrimination no matter what they do. If they don’t make enough loans in low-income, predominantly minority neighborhoods, they get accused of “redlining,” and are subject to sanctions under politically-correct laws like the Community Reinvestment Act, which contributed to the financial crisis by pressuring lenders to make risky mortgage loans.
But if they do make such loans, they get accused of “reverse redlining,” and get sued by the liberal special-interest groups and municipalities that encouraged them to make such loans during the mortgage bubble. Baltimore and various borrowers have also brought “reverse redlining” lawsuits against banks.
The Washington Post reported that bond-rating agencies like Moody’s and Fitch are now getting sued, too, for “reverse redlining,” under the theory that they encouraged risky loans to low-income minorities (who subsequently regretted taking out those loans) by giving respectable ratings to the mortgage-backed securities produced by packaging those mortgage loans. The plaintiffs include the National Community Reinvestment Coalition, which has been pressuring lenders to make risky loans to low-income minorities for years. They blame the ratings-agencies for allowing lenders to make loans to minorities with “insufficient borrower income levels.”
And Obama’s plan will perpetuate all that. It’s as if he wants to ensure he has a pitchfork-ready project when round two of the blame game gets underway, after the economy doesn’t improve after all his spending and stimulating, by being able to blame those greedy Wall Street types and predatory lenders again. It’s another peek into the White House’s mindset regarding the proper role of government in the housing and financial industry. He wants to be in control, and he doesn’t mind setting the stage for another crisis to get there.