Big government and big banks: Too Big to Fail 2.0

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by NW Spotlight

We recently documented the de facto nationalization of the home mortgage industry, which is fattening government coffers by giving 100% of Fannie Mae and Freddie Mac profits to the federal Treasury.  This has left private investors at a complete loss, and a bill introduced in the Senate Banking Committee recently (Johnson-Crapo) will make permanent that rule.  That means investors will have no access to the courts to argue the merits of their case.  But, hey, who needs due process when there’s a political process?

Perhaps as disturbing is the fact that nobody seems to have learned from the financial crisis we suffered through in 2008 and 2009.  The bill leaves in place the same Big Government structure that existed beforehand, puts the entirety of the home mortgage balance sheet on the federal books ($5 trillion!) and even adds bureaucracy by creating an entirely new regulator to oversee the new regime.  So, rather than reducing the government role, Johnson-Crapo expands it.

But “big banks” make out well, too.  We’re loathe to adopt the language of the Left by labeling anything “big” as bad.  In this case, however, it’s hard to ignore their role in the mortgage meltdown and Johnson-Crapo will only swell their mortgage portfolios.  The bill breaks down bank barriers to vertical integration, meaning large banks can now be the guarantors, aggregators, and holders of credit risk for loans.  This leaves a large depository with the opportunity to leverage comprehensive services and discount pricing.  And, the bill makes sure that government is still in place to bail out the banks if necessary.  Call it “Too Big to Fail 2.0.”

If this bill goes through as is, chances are you’ll not have another community bank originate a loan because they simply won’t be able to compete.  That’s why community banks have strongly protested the bill.

 

This isn’t free enterprise; it’s big banks and big government using the political process to corner the mortgage market.

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Posted by at 07:23 | Posted in Economy, Government Regulation, U.S. Senate | 4 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Richard Thompson

    With landmark lawsuit, Barack Obama pushed banks to give subprime loans to Chicago’s African-Americans

    President Barack Obama was a pioneering contributor to the national subprime real estate bubble, and roughly half of the 186 African-American clients in his landmark 1995 mortgage discrimination lawsuit against Citibank have since gone bankrupt or received foreclosure notices.

    As few as 19 of those 186 clients still own homes with clean credit ratings, following a decade in which Obama and other progressives pushed banks to provide mortgages to poor African Americans.

    The startling failure rate among Obama’s private sector clients was discovered during The Daily Caller’s review of previously unpublished court information from the lawsuit that a young Obama worked on as
    an attorney for the lead plaintiff.

    Since the mortgage bubble burst, some of his former clients are calling for a policy reversal.

    “If you see some people don’t make enough money to afford the mortgage, why would you give them a loan?” asked Obama client John Buchanan. “There should be some type of regulation against giving people loans they can’t afford.”

    Banks “were too eager to lend to many who didn’t qualify,” said Don Byas, another client who saw banks lurch from caution to bubble-inflating recklessness.

    “I don’t care what race you are. … You need to keep financial wisdom [separate] from trying to help your people,” said Byas, an autoworker.

    Nonetheless, Obama has pursued the same top-down mortgage
    lending policies in the White House.

    Obama’s lawsuit was one element of a national “anti-redlining” campaign led by Chicago’s progressive groups, who argued that banks unfairly refused to lend money to people living within so-called “redlines” around African-American communities. The campaign was powered by progressives’ moral claim that their expertise could boost home ownership among the United States’ most disadvantaged minority, African-Americans.

    Progressive activists’ ambition instead contributed greatly to a housing bubble that burst in 2007, crashed the nation’s economy in 2008, wiped out at least $4 trillion in equity, kept unemployment above 8 percent for four years, and damaged the intended beneficiaries of looser mortgage lending standards.

    In the White House, Obama has continued to intensify regulatory pressure on banks to provide more risky loans to African-Americans and Latinos. He has used lawsuits to fund his allies. And taxpayers are now unwittingly contributing to a re-inflation of housing prices.

    Meanwhile, the president has blamed the housing bubble on supposed GOP deregulation, even though President George W. Bush expanded the regulation-expanding, anti-redlining policies established by progressives during Bill Clinton’s presidency.

    “Governor Romney’s plan would… roll back regulations on big banks,” Obama says of his Republican challenger Mitt Romney in a 2012 TV ad titled “The Choice.”

    “But you know what? We tried that top-down approach. It’s what caused the mess in the first place.”

    The Lawsuit

    Fay Clayton, a Chicago progressive activist, initiated the discrimination lawsuit in 1994. Obama’s employer, a lawyer named Judson Miner, allied with Clayton to file a class-action lawsuit a year later.

    Obama appeared at Clayton’s office “saying he was the new associate on the case,” Clayton said in a statement to The Daily Caller. “I remember Barack arriving — he was industrious, he enjoyed the work, he was clearly smart and dedicated.”

    The suit named three African-American plaintiffs, but later added 183 whom Citibank or its subsidiaries had allegedly rejected for mortgages in 1993 and 1994.

    Some of the plaintiffs told TheDC about their rejections by Citibank.

    Citibank’s lending agent “told me that I needed to put thousands of dollars down [to increase equity]… I was so upset at that, I said
    ‘’Do I look like I have ‘stupid’ on my forehead?’” said Maudestine McLeary.

    Byas said he had a Citibank mortgage on his property in Austin, a West Side Chicago neighborhood, but was rejected when he sought a
    mortgage to buy a house in the troubled Maywood district.

    “Chicago had been redlining people for years and years …
    [and] you knew this kind of crap happened,” said Dale Freeman, an operations manager at the Federal Reserve Bank of Chicago. He quickly got a loan from another bank to buy a house in the wealthy South Side neighborhood of Hyde Park, where he and his family still live.

    Citibank defended the cautious way it loaned out its shareholders’ money, saying that “the underwriting criteria were racially neutral on their face … [and] that each of the named defendants was denied the
    home loans he or she requested due to his or her lack of financial
    qualifications,” according to a June 1995 summary by the judge who heard Obama’s discrimination case.

    Citibank had a significant amount of data to back up its case.

    For example, when the 186 clients submitted their names for compensation in 1998, it turned out that least 19 had bankrupted or received foreclosure notices even before December 1997. Another 18 of the 186 clients would go under within three years because of financial pressures.

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