Who’s Really To Blame For Our Financial Crisis?

The answer is BOTH parties. The democrats, particularly Clinton’s Administration, caused the most harm. Here is the history:

1977:  Under Carter the Administration the Community Reinvestment Act (CRA) was enacted that encouraged banks to provide home mortgages in their low-income neighborhoods where low-income customers had deposits — a good and noble goal.

1995:  The Clinton Administration rewrote the CRA rules to REQUIRE loans be made to low credit quality borrowers and these new rules became effective in January 31, 1995. This was the start of subprime mortgages — where borrowers did not meet the historic standards of the homeowner of the past.

1995— 2000:  Clinton administration engaged Fanny May, Freddy Mac, and others to buy these subprime loans. The number of subprime mortgage loans went from less than 1% of all mortgages issued to 12% within three years and continued through Clinton’s presidency.

2001:  In April, (as part of the 2002 Budget Request) the Bush Administration briefed Congress asking for tighter regulatory authority over Fannie Mae and Freddie Mac (two so-called government-sponsored enterprises or GSEs) because if either failed their size was a potential problem that could “cause strong financial market repercussions.”

2003:  The Bush Administration again raised a red flag saying the lack of regulatory oversight was “a systemic risk that could affect more than the housing market.” Treasury Secretary John Snow sought a new strong regulatory agency to supervise both Fannie and Freddie to ensure the safety and soundness of their activities. All of these efforts fell on deaf ears and subprime lending really took off in late 2003. Federal Reserve Chairman Alan Greenspan also gave similar testimony.

Democrats strongly opposed changes. Congressman Barney Frank, then ranking member and later Democrat Chairman of the House Financial Services Committee, stated: “Fannie Mae and Freddie Mac are not in a crisis…they are fundamentally sound and…the government should do more to encourage home purchases.” He called the threat an “exaggeration” among other things, and the legislation was blocked.

2005:  In February Federal Reserve Chairman Alan Greenspan weighed in with testimony stating: “…Enabling these institutions to increase in size …we are placing the total financial system of the future at a substantial risk.” At a later hearing he stated: “If we fail to strengthen GSE regulation we increase the possibility of insolvency in crisis.” All of these efforts by Greenspan and the Bush Administration also fell on deaf ears.

Senator Charles Schumer, at a Senate Banking Committee hearing in April stated: “…I think Fannie and Freddie over the years have done an incredibly good job and are an intrinsic part of making America the best-housed people in the world…if you look over the past 20 years or whatever years, they’ve done a very, very good job.”

2006:  In May Senator McCain jointly sponsored a bill to reform these large institutions. He stated: “For years I have been concerned about the regulatory structure that governs…and the sheer magnitude of these companies and the role they play in the housing market…the GSE’s need to be reformed without delay.” The Committee split mostly along party lines and the bill failed to go to the floor of the Senate.

So, who’s to blame? Clinton’s and Obama’s recent claims seem to restrict history to the last six years. The mess started and was amplified by democrats, particularly President Clinton. Democrats defended the status quo when danger signs were clear. The Bush Administration can be blamed for not demanding regulatory changes before the crisis struck. Democrats really created and should be held accountable for the mess. Most people blame Bush because the democrats are better at the “blame game” than the republicans.

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Dr. Cleland’s Ph.D. is from Purdue University where he specialized in complex systems theory. His technical training and experiences includes analyses of many types of systems, involvement with numerous federal, state, and local agencies, and management of a broad set of set of professionals, services, and trades people. He has managed scientists, engineers, policemen, firefighters, environment, health, safety and emergency planning experts, building trades and maintenance crafts personnel, and others.

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