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February 2, 2009

Even New York Times Saw the Crash Coming

Posted by Dave Blount at February 2, 2009 7:00 AM

It seems everyone knew that forcing banks to lend based on skin color instead of ability to repay was going to lead to disaster — even the New York Times. From the September 30, 1999 edition:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. … Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

The Gray Lady's crystal ball didn't mention that this would bring the entire economy down, as we know now.

A little more background:

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings. …
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Race-based mortgages started under Carter with the insane Community Reinvestment Act, and were pushed aggressively under Clinton. Now Obama, who as a lawyer for ACORN was involved in using the CRA to browbeat banks into making bad loans, the financial crisis this lunacy caused is being used as a pretext to plunge us into a still worse crisis with the cataclysmically wasteful porkulus, I mean, stimulus package, in an apparently deliberate attempt to recreate the Democrat Party's glory days of the Great Depression.

Elections have consequences, all right.

On a tip from xantl.