Did Fannie Mae, Freddie Mac Or The Community Reinvestment Act Cause the Recession

Private lenders issued vast majority of sub-prime loans

Did Fannie Mae, Freddie Mac Or The Community Reinvestment Act Cause the Recession

In the four years since the housing bubble burst, triggering a collapse in global financial markets whose value had been propped up through the repackaging and trading of home loans via complex financial instruments, there's been plenty of blame to go around. The Occupy Wall Street protests have called new attention to the root causes of the crisis, and led Republicans to reiterate their claim that government-backed lenders Fannie Mae and Freddie Mac were the primary villains. The facts about the subprime mortgage market prove that claim false: Private firms dominated the subprime market boom of 2004-06, and were not even subject to the 1977 Community Reinvestment Act some Republicans vilify. Thanks to decades of financial deregulation, capped by President Bush's decision to appoint Wall Street regulators who believed their job was to help banks rather than curb banking abuses, financial giants were able to turn the mortgage market into a high-stakes casino. As investigative reporters and Congress' Financial Crisis Inquiry Commission have all shown, it was deregulation mixed with irresponsible and potentially illegal practices by private firms on Wall Street that caused both the bubble and the collapse.

Republicans Blame The Financial Crisis On Fannie Mae, Freddie Mac, And Government Policy

Facts Show Private Lenders Who Were Not Subject To CRA, Not Government-Backed Ones Who Were, Drove The Subprime Mortgage Market

Deregulation Of Financial Markets And GOP-Appointed Absentee Regulators Paved The Way For The Subprime Bubble To Cause A Broad Collapse

"Financial Crisis Inquiry Commission" Expert Panel Found Wall Street Recklessness Caused The Crisis

Author Of Top Book On Financial Crisis Says There Is No Evidence For Blaming Either The CRA Or Fannie And Freddie

Republicans Blame The Financial Crisis On Fannie Mae, Freddie Mac, And Government Policy

Speaker Boehner: "Government Mortgage Companies...Triggered The Whole Meltdown." From House Speaker John Boehner's (R-OH) May 9, 2011, speech on Wall Street: "And the government mortgage companies that triggered the whole meltdown went untouched." [Boehner Remarks, 5/9/11]

Sen. Graham: "Fannie Mae And Freddie Mac" Were Behind "The Problem That Got Us Into This Mess." On the January 2, 2011, edition of NBC's Meet the Press, Sen. Lindsey Graham (R-SC) said: "[T]he financial regulation bill really left unattended Fannie Mae and Freddie Mac, and when you have government entities this large who own this much of housing, who've been pushing mortgages on people who couldn't afford to pay them, and you do nothing about it, it's pretty hard for me to say you've reformed the problem that got us into this mess. [...] To me, [the solution] is to get Fannie Mae and Freddie Mac in a, in a more privatized environment where risk/reward is, is, is more traditionally accepted. That--the American dream is to own a home you can afford. And to look at these entities and get more private-sector involvement and control who they lend money to and basically wind them down and make them more private." [Meet the Press, 1/2/11]

Sen. DeMint: "Liberal Housing Goals...Fueled The Housing Crisis." From Sen. Jim DeMint's (R-SC) blog: "Senator McCain has offered an amendment that would repeal their liberal housing goals that encouraged more risky lending and fueled the housing crisis, as well as end their dominance of the mortgage market and let the private sector back in. While more needs to be done to quickly end the permanent bailout of these mortgage giants, the McCain amendment is an important first step. True financial reform must include Freddie Mac and Fannie Mae. Congress cannot pretend to have ended 'too big to fail' without ending these out of control institutions." [DeMint.Senate.gov, 5/11/10]

Rep. Hensarling: "The Financial Crisis Was Caused By Failed Federal Policies" With Fannie And Freddie "At The Epicenter." From Rep. Jeb Hensarling's (R-TX) website: "The financial crisis was caused by failed federal policies that strong-armed, incented, and cajoled financial institutions into loaning money to people to buy homes that they couldn't afford to keep.  At the epicenter of this were Fannie Mae and Freddie Mac." [Hensarling.House.gov, accessed 10/13/11]

At GOP Presidential Debate, Rep. Bachmann Blamed The Community Reinvestment Act And Fannie Mae And Freddie Mac For The Crisis. At the October 11, 2011, GOP presidential primary debate, Rep. Michele Bachmann (R-MN) said: "I think if you look at the problem with the economic meltdown, you can trace it right back to the federal government, because it was the federal government that demanded that banks and mortgage companies lower platinum-level -- level -- lending standards to new lows. [...] It was the federal government that pushed the subprime loans.  It was the federal government that pushed the Community Reinvestment Act.  It was Congressman Barney Frank and also Senator Chris Dodd that continued to push government-directed housing goals.  They pushed the banks to meet these rules.  And if banks failed to meet those rules, then the federal government said, we won't let you merge; we won't let you grow.  There's a real problem:  It began with the federal government, and it began with Feddie and -- Freddie and Fannie." [GOP Debate, 10/11/11, via CFR.org]

Facts Show Private Lenders Who Were Not Subject To CRA, Not Government-Backed Ones Who Were, Drove The Subprime Mortgage Market

Private Firms, Not Fannie And Freddie, Dominated The Subprime Mortgage Market

2007: The Collapse Of The Housing Bubble And Widespread Defaults On Subprime Loans Triggered A Banking Crisis That Led To A Massive Recession. From Slate: "The only near consensus is on the question of what triggered the not-quite-a-depression. In 2007, the housing bubble burst, leading to a high rate of defaults on subprime mortgages. Exposure to bad mortgages doomed Bear Stearns in March 2008, then led to a banking crisis that fall. A global recession became inevitable once the government decided not to rescue Lehman Bros. from default in September 2008. Lehman's was the biggest bankruptcy in history, and it led promptly to a powerful economic contraction. Somewhere around here, agreement ends." [Slate, 1/9/10, emphasis added]

The Subprime Market Surged From 2004 To 2006. As reported by McClatchy: "Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006." [McClatchy, 10/12/08]

From 2004 To 2006, Fannie And Freddie's Share Of Subprime Market Fell From Almost Half To Just Under One-Quarter. As reported by McClatchy: "But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership. Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication." [McClatchy, 10/12/08, emphasis added]

    Fannie And Freddie Faced Tougher Regulatory Standards Than The Private Firms. As reported by McClatchy: "One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble." [McClatchy, 10/12/08]

2006: Private Firms Issued About Six Out Of Every Seven Subprime Mortgages. As reported by McClatchy:

    Federal Reserve Board data show that:

        More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
        Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
        Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics. [McClatchy, 10/12/08, emphasis added]

2008: The 15 Largest Subprime Servicers Were All Private Companies, Despite Large Drops In The Volume Of Their Subprime Business Compared To 2007. McClatchy prepared a graphic based on Inside Mortgage Finance data showing the 15 largest subprime service companies in 2008:

     [McClatchy, 10/12/08]

"Conservative Campaign That Blames The Global Financial Crisis On A Government Push To Make House More Affordable" Is Disproved By The Data. As reported by McClatchy: "As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail. Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems. Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis." [McClatchy, 10/12/08, emphasis added]

Fannie And Freddie Don't Issue Loans, But Buy Them From Private Banks So Banks Can Continue Lending. As reported by McClatchy: "Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages. [...] Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans. It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more." [McClatchy, 10/12/08, emphasis added]
The CRA Didn't Apply To The Private Firms That Inflated The Subprime Bubble

Conservatives Blame The Community Reinvestment Act Of 1977 (CRA) For The Subprime Boom Of The Early 2000s. From former Director of the U.S. Treasury's Office of Thrift Supervision Ellen Seidman:

    It has lately become fashionable for conservative pundits (Larry Kudlow, George Will) and disgruntled ex-bankers (Vernon Hill, for example, in his March 7 American Banker editorial) to blame the current credit crisis on the Community Reinvestment Act. This is patent nonsense. The sub-prime debacle has many causes, including greed, lack of and ineffective regulation, failures of risk assessment and management, and misplaced optimism. But CRA is not to blame.

    First, the timing is all wrong. CRA was enacted in 1977, its companion disclosure statute, the Home Mortgage Disclosure Act (HMDA) in 1975. While many of us warned against bad subprime lending before the turn of the millennium, the massive breakdown of underwriting and extension of risky products far down the income scale-without bothering to even check on income-was primarily a post-2003 phenomenon. To blame a statute enacted in 1977 for something that happened 25 years later takes a fair amount of chutzpah. [...]

    Second, CRA does not either encourage or condone bad lending. Bank regulators were decrying bad subprime lending before the turn of the millennium (see Interagency Guidance on Subprime Lending), and warning the CRA-covered institutions we regulated that badly underwritten subprime products that ignored consumer protections were not acceptable. Lenders not subject to CRA did not receive similar warnings. [New America Foundation, 9/22/08, emphasis added]

The CRA Did Not Affect The Vast Majority Of Subprime Loans. From Businessweek: "The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly.

Something Devious Going On - Why Is Darrell Issa (R-CA) Ignoring Bush Era Fast and Furious Type Program

Something Devious Going On - Why Is Darrell Issa (R-CA) Ignoring Bush Era Fast and Furious Type Program

As House Oversight Committee Chairman Rep. Darrell Issa (R-CA) continues to try to pin the flawed "gun walking" tactic employed in Operation Fast and Furious on the Obama administration, it's becoming increasingly clear that problems with ATF's Phoenix division date back at least into the Bush era.

TPM has obtained the documents relating to another Bush-era ATF operation (on top of Operation Wide Receiver) which deployed the "gun walking" tactic. The development was first reported by Pete Yost of the Associated Press.

In fact, ATF officials wrote in 2007 that the gun walking tactic had "full approval" of the U.S. Attorney's Office being run by an interim Bush appointee and that the U.S. Embassy in Mexico was "fully on-board."

Under DOJ policy, illicit arms shipments are supposed to be intercepted whenever possible. But the emails show that just like in Operation Fast and Furious, official planned to allow guns to "walk" across the border and into Mexico in an attempt to identify traffickers higher up in the operation (rather than low ranking "straw purchasers," who are difficult to prosecute thanks to the lack of an anti-trafficking gun law).

On Sept. 27, 2007 -- when the Justice Department was reeling from the resignation of former Attorney General Alberto Gonzales -- ATF agents in Phoenix and Mexico were conducting partial surveillance of suspects who purchased numerous weapons at a federally licensed firearms dealership.

After they watched the group purchase 19 weapons on Sept. 21 and 24 and additional weapons on Sept. 27, they watched as the weapons crossed the border into Mexico.

"Phoenix AZ ATF agents observed this vehicle commit to the border and reach the Mexican side until it could no longer be seen," ATF assistant director Carson Carroll wrote in a Sept. 28, 2007 email. "We, the ATF (Mexico) did not get a response from the Mexican side until 20 minutes later, who then informed us that they did not see the vehicle cross."

A few days later, William Newell -- the ATF official in charge of the Phoenix division -- tried to assure colleagues that everything would be okay.

"I know you have reservations but please rest assured that this will go as planned, as allowed per MLAT (Mutual Legal Assistance Treaty) with Mexico, with full approval of the USAO (confirmed again late this afternoon), and will have big payoffs for us and the Department in addresing (sic) Mexico's concerns that we (US) aren't doing enough to address their concerns," Newell wrote in an Oct. 4, 2007 email. "Trust me, I'm with Gov't."

"Wow, I feel so much better," William Hoover, the ATF Assistant Director for Field Operations wrote in an email the next morning.

Hoover's emails lay out all the questions that congressional and Justice Department investigators are examining about Fast and Furious.

"This is a major investigation with huge political implications and great potential if all goes well. We must be very prepared if it doesn't go well," Hoover wrote in a Oct. 5, 2007 email.

"I would like to discuss the following: Have we discussed the strategy with the US Attorney's Office re letting guns walk? Do we have this approval in writing? Have we discussed and thought thru the consequences of same? Are we tracking south of the border?" Hoover wrote in the email.

Current Attorney General and Obama appointee Eric Holder was investigating the Bush era gun walking program. So a fair minded American has to ask themselves who Issa is making it sound as though all this gun walking is some how Eric Holder's fault. Gosh do you think this is yet another political witch-hunt by right-wing conservatives that has about as much substance as Rush Limbaugh's brain. Maybe, just maybe Issa is also trying to distract attention from his own corruption - American Family Voices asks for investigation of Issa.

The Media and Propaganda - How Fox is Brainwashing America

The Media and Propaganda - How Fox is Brainwashing America

There is nothing more sacred to the maintenance of democracy than a free press. Access to comprehensive, accurate and quality information is essential to the manifestation of Socratic citizenship - the society characterized by a civically engaged, well-informed and socially invested populace. Thus, to the degree that access to quality information is willfully or unintentionally obstructed, democracy itself is degraded.

It is ironic that in the era of 24-hour cable news networks and "reality" programming, the news-to-fluff ratio and overall veracity of information has declined precipitously. Take the fact Americans now spend on average about 50 hours a week using various forms of media, while at the same time cultural literacy levels hover just above the gutter. Not only does mainstream media now tolerate gross misrepresentations of fact and history by public figures (highlighted most recently by Sarah Palin's ludicrous depiction of Paul Revere's ride), but many media actually legitimize these displays. Pause for a moment and ask yourself what it means that the world's largest, most profitable and most popular news channel passes off as fact every whim, impulse and outrageously incompetent analysis of its so-called reporters. How did we get here? Take the enormous amount of misinformation that is taken for truth by Fox audiences: the belief that Saddam Hussein had weapons of mass destruction (WMD) and that he was in on 9/11, the belief that climate change isn't real and/or man-made, the belief that Barack Obama is Muslim and wasn't born in the United States, the insistence that all Arabs are Muslim and all Muslims are terrorists, the inexplicable perceptions that immigrants are both too lazy to work and are about to steal your job. All of these claims are demonstrably false, yet Fox News viewers will maintain their veracity with incredible zeal. Why? Is it simply that we have lost our respect for knowledge?

My curiosity about this question compelled me to sit down and document the most oft-used methods by which willful ignorance has been turned into dogma by Fox News and other propagandists disguised as media. The techniques I identify here also help to explain the simultaneously powerful identification the Fox media audience has with the network, as well as their ardent, reflexive defenses of it.

The good news is that the more conscious you are of these techniques, the less likely they are to work on you. The bad news is that those reading this article are probably the least in need in of it.

1. Panic Mongering. This goes one step beyond simple fear mongering. With panic mongering, there is never a break from the fear. The idea is to terrify and terrorize the audience during every waking moment. From Muslims to swine flu to recession to homosexuals to immigrants to the rapture itself, the belief over at Fox seems to be that if your fight-or-flight reflexes aren't activated, you aren't alive. This of course raises the question: why terrorize your own audience? Because it is the fastest way to bypasses the rational brain. In other words, when people are afraid, they don't think rationally. And when they can't think rationally, they'll believe anything.

2. Character Assassination/Ad Hominem. Fox does not like to waste time debating the idea. Instead, they prefer a quicker route to dispensing with their opponents: go after the person's credibility, motives, intelligence, character, or, if necessary, sanity. No category of character assassination is off the table and no offense is beneath them. Fox and like-minded media figures also use ad hominem attacks not just against individuals, but entire categories of people in an effort to discredit the ideas of every person who is seen to fall into that category, e.g. "liberals," "hippies," "progressives" etc. This form of argument - if it can be called that - leaves no room for genuine debate over ideas, so by definition, it is undemocratic. Not to mention just plain crass.

3. Projection/Flipping. This one is frustrating for the viewer who is trying to actually follow the argument. It involves taking whatever underhanded tactic you're using and then accusing your opponent of doing it to you first. We see this frequently in the immigration discussion, where anti-racists are accused of racism, or in the climate change debate, where those who argue for human causes of the phenomenon are accused of not having science or facts on their side. It's often called upon when the media host finds themselves on the ropes in the debate.

4. Rewriting History. This is another way of saying that propagandists make the facts fit their worldview. The Downing Street Memos on the Iraq war were a classic example of this on a massive scale, but it happens daily and over smaller issues as well. A recent case in point is Palin's mangling of the Paul Revere ride, which Fox reporters have bent over backward to validate. Why lie about the historical facts, even when they can be demonstrated to be false? Well, because dogmatic minds actually find it easier to reject reality than to update their viewpoints. They will literally rewrite history if it serves their interests. And they'll often speak with such authority that the casual viewer will be tempted to question what they knew as fact.

5. Scapegoating/Othering. This works best when people feel insecure or scared. It's technically a form of both fear mongering and diversion, but it is so pervasive that it deserves its own category. The simple idea is that if you can find a group to blame for social or economic problems, you can then go on to a) justify violence/dehumanization of them, and b) subvert responsibility for any harm that may befall them as a result.

6. Conflating Violence With Power and Opposition to Violence With Weakness. This is more of what I'd call a "meta-frame" (a deeply held belief) than a media technique, but it is manifested in the ways news is reported constantly. For example, terms like "show of strength" are often used to describe acts of repression, such as those by the Iranian regime against the protesters in the summer of 2009. There are several concerning consequences of this form of conflation. First, it has the potential to make people feel falsely emboldened by shows of force - it can turn wars into sporting events. Secondly, especially in the context of American politics, displays of violence - whether manifested in war or debates about the Second Amendment - are seen as noble and (in an especially surreal irony) moral. Violence become synonymous with power, patriotism and piety.

7. Bullying. This is a favorite technique of several Fox commentators. That it continues to be employed demonstrates that it seems to have some efficacy. Bullying and yelling works best on people who come to the conversation with a lack of confidence, either in themselves or their grasp of the subject being discussed. The bully exploits this lack of confidence by berating the guest into submission or compliance. Often, less self-possessed people will feel shame and anxiety when being berated and the quickest way to end the immediate discomfort is to cede authority to the bully. The bully is then able to interpret that as a "win."

8. Confusion. As with the preceding technique, this one works best on an audience that is less confident and self-possessed. The idea is to deliberately confuse the argument, but insist that the logic is airtight and imply that anyone who disagrees is either too dumb or too fanatical to follow along. Less independent minds will interpret the confusion technique as a form of sophisticated thinking, thereby giving the user's claims veracity in the viewer's mind.

9. Populism. This is especially popular in election years. The speakers identifies themselves as one of "the people" and the target of their ire as an enemy of the people. The opponent is always "elitist" or a "bureaucrat" or a "government insider" or some other category that is not the people. The idea is to make the opponent harder to relate to and harder to empathize with. It often goes hand in hand with scapegoating. A common logical fallacy with populism bias when used by the right is that accused "elitists" are almost always liberals - a category of political actors who, by definition, advocate for non-elite groups.

10. Invoking the Christian God. This is similar to othering and populism. With morality politics, the idea is to declare yourself and your allies as patriots, Christians and "real Americans" (those are inseparable categories in this line of thinking) and anyone who challenges them as not. Basically, God loves Fox and Republicans and America. And hates taxes and anyone who doesn't love those other three things. Because the speaker has been benedicted by God to speak on behalf of all Americans, any challenge is perceived as immoral. It's a cheap and easy technique used by all totalitarian entities from states to cults.

Dr. Cynthia Boaz is assistant professor of political science at Sonoma State University, where her areas of expertise include quality of democracy, nonviolent struggle, civil resistance and political communication and media. She is also an affiliated scholar at the UNESCO Chair of Philosophy for Peace International Master in Peace, Conflict, and Development Studies at Universitat Jaume I in Castellon, Spain.

There are four more propaganda techniques used by Fox and the far Right conservative media in general at the link.