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Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis. At a 2004 hearing see Democrat after Democrat covering up and attacking the regulations to protect Fannie Mae and Freddie Mac (their Cash Cows) that are now destroying our economy because the Democrats let them cheat. There has been a lot of disinfo out there about the causes of the economic fail. I'm frankly sick of it, so as a public service, I thought I might lay it to rest right now. This is a long article, and will remain on a static page for all to see. The roots of the fail can be traced back to the Carter Administration. President Carter signed the Community Reinvestment Act (CRA) in 1977. This was basically feel-good legislation that forced banks to serve all customers in a several mile radius of the branches. This was intended to end the practice of "redlining," where banks would refuse to service "bad" neighborhoods, ie, low income. Fast forward to the Clinton Administration. In 1995, Clinton signed an extensive revision of the act. This act forced banks to document how they were complying with CRA regulations. For more, see this. * The Clinton Admin and the Democrats in power added massive new provisions to authorize — require — sub-prime loans be made. The revisions went further, by allowing the securitization of CRA loans containing sub-prime mortgages. * That forced banks to issue $1 trillion in new "sub-prime" Loans. * By 2000, the CRA was funneling millions, perhaps billions of dollars to left-wing "community activist" groups. The Clinton Administration had turned the Community Reinvestment Act into a Democrat piggy-bank and "a scheme against the nation's banks". * And created sub-prime mortgage securities. Bear Sterns was the first company to do it. Remember them? * Remember, the banks had to issue sub-prime loans or pay big penalties to the government. * How do you keep these loans "affordable" * No money! No money down! Interest only! Low variable rate! No income verification! Bad Credit! No credit! No problem! Just sign here! * By 2004, 92% of Fannie Mae's sub-prime loans were variable rate. * Fannie Mae told the banks "Make the loans — we'll guarantee them". * Home ownership kept rising — and so did prices, and the demand for houses rose too. * But demand for loans caused the interest rate to rise. Basic supply and demand 101 stuff. High-school students are taught this. Apparently not Senators or Representatives. * Then, gas prices shot up. Paychecks got squeezed. Especially low-income paychecks. Some borrowers stopped paying — so banks stopped lending. * Foreclosures started piling up. No buyers, only sellers. * Home prices started falling. Down 2%, 4%, 6%, 8%... * More borrowers stopped paying. 60 day+ delinquencies went from under 8% in 2006 to over 25% by mid-2007 * Fannie Mae "Guarantees" became worthless -- because they kept overstating their assets. * Banks collapsed due to worthlessness. Government Sponsored Securities issued by Fannie Mae became worthless. Jobs disappeared — and here we are. Why is the expansion of the Government's Community Reinvestment Act to blame? * Before CRA expansion, home prices simply increased with the underlying inflation rate, going up by 200% from 1975 through 1995 as the dollar dropped in value by the same amount. Home prices and home ownership rates were essentially flat -- after adjusting for inflation. After CRA, home prices became unhinged from inflation, jumping 100% from 1996 to 2006 while inflation increased by 'only' 33%. * CRA caused home prices to rise too fast. Economic fundamentals did not support this growth. Government regulation-mandated credit did. Now, you might ask yourself, Why didn't anyone warn about this? Well, dear reader, warnings were mad...