The money pool: tracing back

The money pool was seeking something to buy. What was being sold is the question. The IBD traced it back to the source in Stop Covering Up And Kill The CRA

The exotic securitizations that have gotten so much of the blame were a symptom, not the cause, of the crisis.

This is the immediate concern because it is the market for these securitizations that has crashed. That market is also one that is easy to label with terms such as “corporate greed” and has been subject to a lot of regulation – and envy. But it is the intermediary, the shopkeeper, and not either the buyer nor the seller. The seller was a product of government social efforts.

The Community Reinvestment Act is to blame for the financial crisis, but it so powerfully serves Democrats’ interests that they’ll do anything to protect it — including revising history.

The CRA coerces banks into making loans based on political correctness, and little else, to people who can’t afford them. Enforced like never before by the Clinton administration, the regulation destroyed credit standards across the mortgage industry, created the subprime market, and caused the housing bubble that has now burst and left us with the worst housing and banking crises since the Great Depression.

The banks in this case are the guys in the middle, the shopkeepers. They have buyers lined up with money to spend. They have a government pushing, demanding even, unwise practice. They have a market anxious to for the pool of money, a market that could not find money without some unusual pressures like the CRA.

Fact: The 1977 law was only lightly enforced until Clinton added teeth to it in 1994 and launched an anti-redlining campaign against banks, led by Ludwig, Housing Secretary Henry Cisneros (and later Andrew Cuomo) and Attorney General Janet Reno that lasted into this decade.

Minority homeownership rates, which had been flat, began a steep rise in 1995, and home prices soon followed, stoked by easier lending. Numerous bank officials complain that they still feel pressured by CRA regulators to make inner-city loans they know are at great risk of defaulting.

The thing is that when the slide was greased, the price of the goods ballooned as competition for them increased. But the grease dried up when the owners of the money pool started to realize their money was going towards investments that had ballooned way past a reasonable value and were supporting untenable financial leverage rather than solid asset values.

It’s the guys in the middle, the shopkeepers, who got the splinters when the grease dried up. Their pain resulted in more normal and traditional uses of money flow to dry up and that has been what the bailouts have been trying to grease.

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