I have read and heard a lot of talk about who and what is responsible for the current financial crisis. One of the persons who is being blamed is Bill Clinton and his changes to the Community Reinvenstment Act.
This did not seem realistic to me, so I have done some checking on my own and would like to share the following. It is to be noted that former Sen. Phil Gramm is a major economic advisor to Sen. McCain and it is his bill of 1999 which appears to be the primary culprit.
The Gramm-Leach-Bliley Financial Services Modernization Act, Pub. L. No. 106-102, 113 Stat. 1338 (November 12, 1999), repealed part of the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services. This act of 1999 allowed the opening of lending to move banks from organizations to receive deposits and make loans to multi-functioning organizations. It is these corporations who worked with mortgage origination companies to write loans to people without proper collateral or even credit worthy. These same institutions then sold the loans as paper to investors. It was this law, not the Community Reinvestment Act, which is the primary culprit behind the current investment problem. (Some of above from Wikipedia)
The Community Reinvestment Act was changed by Clinton in 1995, which allowed the loans on banks books to be made based on three factors instead of twelve. These three were a lending test, a service test and an investment test. This change also had to do with were banks were making the loans, to increase their penetration of the areas most hard hit by closures of major employers, etc. It also allowed the EPA to press forward on the clearing up of brown fields, areas of a city that were covered in closed factories and commercial property. This is a provision that has had a major impact on Chattanooga, because of the shift away from a manufacturing base over the last 30 years.
Therefore, to put the major blame on Clinton seems to be a personal value judgment; not a statement of historical fact. The real problem is the loosening of regulations on commercial banks, investment companies and insurance services as well as the poor judgment of the leadership of these corporations. This problem illustrates the need for someone to oversee these areas of our economy, since the savings and loan problem of the eighties, the dot com bubble of the nineties and now the mortgage crisis all point to the lack of judgment of corporate leadership in today's hyper-competitive, live or die the quarterly results economy.
Roger A. Meyer, PhD
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Once again Roger Meyer flaunts his "PhD," apparently hoping we'll be so impressed we ignore his totally erroneous statements.
First, "deregulation" has never been tried. Once any government gets control of anything, it never lets go, at least not voluntarily.
The weeping and wailing and gnashing of teeth, including cries of "failure of deregulation," occur with such frequency many people have come to believe it, even though it has never happened.
Out in California, their Roger Meyer equivalents were blaming "deregulation" for the flaws and shortages and price rises in the energy ... well, "system" is not quite the right word, implying as it does some order, some organization, and Lord knows there ain't no such animal in California.
What happened, and what has happened in the airlines and in the government-oriented financial "system," is not "deregulation" but a different degree and/or orientation of regulation.
Government has still been involved, and government has still fouled up everything it touches.
Luke Saturnah
East Brainerd
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Your point on the present financial crisis was interesting and well-taken. Since you seem to be familiar with financial legislation, could you please provide your input on the 2005 Senate Bill 190-Federal Housing Enterprise Regulatory Reform Act of 2005 -(which never became law). This bill was sponsored by Senator Charles Hagel (R) NE. It was co-sponsored by John McCain (R) AR; Elizabeth Dole (R) NC; and John Sununu (R) NH.
According to the American Enterprise Institute for Public Policy Research (September 12, 2005), "The GSE regulatory reform bill reported out of the Senate Banking Committee in July 2005 included a provision that would virtually eliminate the authority of Fannie Mae and Freddie Mac to acquire and maintain portfolios of mortgages and mortgage-backed securities...Had this provision been adopted, it would have virtually eliminated the risk that these government sponsored enterprises (GSEs) create for the taxpayers and the economy." It is my understanding that Democrats opposed the measure, arguing that it could "disrupt the mortgage market and spark volatility through the housing sector."
I make absolutely no pretense of being an expert in this field, and thus welcome your insight into whether this failed legislation may have mitigated the financial meltdown we have recently observed in Fannie Mae and Freddie Mac.
Mya Lane