Sunday, October 5, 2008

Constitutional Act of the Day: Community Reinvestment Act

Class, before I begin my explanation as to how our nation was plunged into financial ruin by a combination of Wall-Street and both the Democrats and Republicans in the White house from 1999 to 2008 (yes, that includes Golden Boy Bill Clinton), I would like to prep you with some "of the day" lessons.

We will begin with the Community Reinvestment Act:

If you followed the link and did some reading on your own, you would find out the following...

Year Passed: 1977

Who Passed: Jimmy Carter Administration and the 95th U.S. Congress (both chambers were a Democratic Majority)

What it entailed: It encouraged commercial banks and savings associations to stop redlining practices and lend money to their surrounding communities, mainly low-moderate income neighborhoods providing that is it is monitored by the Fed to ensure "safe and sound operation"

Criticism -OR- What it meant to potential exploiters
"distort credit markets" - OR - expansion into risky investing like Securities and Derivatives

"create unnecessary regulatory burden" -OR- Freddie Mac and Fannie Mae to lend financial backing, the chance for government to make(lose) money in the financial sector, and making up a CRA rating system for banks so government could provide an illusion of accountability.

"lead to unsound lending" -OR- pave the way for unregulated predatory lending (What happened to the CRA rating system?)

"cause the governmental agencies charged with implementing the law to allocate credit"-OR- Government was asking for the banks to lend in the first place, and also promising oversight in lending practices. Why wouldn't financial institutions expect a bailout from government, especially with participation from Fannie Mae and Freddie Mac?

Think about it kids.

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