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Current Economic Situation caused by American Housing Boom and Bust

"It was liberal Democrats, led by Sen. Christopher Dodd and Rep. Barney Frank, who for years - including this year - denied that Fannie Mae and Freddie Mac were taking big risks that could lead to a financial crisis. It was Mr. Dodd, Mr. Frank and other liberal Democrats who for years refused requests from the Bush administration to set up an agency to regulate Fannie Mae and Freddie Mac."

"It was liberal Democrats, again led by Mr. Dodd and Mr. Frank, who for years pushed for Fannie Mae and Freddie Mac to go even further in promoting subprime mortgage loans, which are at the heart of today's financial crisis."

"Alan Greenspan warned them four years ago. So did the chairman of the President's Council of Economic Advisers . So did Mr. Bush's Treasury secretary, five years ago. Yet, today, what are we hearing? That it was the Bush administration "right-wing ideology" of "deregulation" that set the stage for the financial crisis."

October 7, 2008 quote from Dr.Thomas Sowell author of "The Housing Boom and Bust". Sowell has taught Economics at Howard University, Cornell University, Brandeis University, and UCLA. Since 1980 he has been a Senior Fellow of the Hoover Institution at Stanford University, where he holds a fellowship named after Rose and Milton Friedman.

This page contains my thoughts on the current enonomic situation.

This page is under construction.

Economics

Cast of characters

Congress
Federal Reserve System
Federal National Mortgage Association (Fannie Mae)
Federal Home Loan Mortgag Corporation (Freddie Mac)
Department of Housing and Urban Development (HUD)
Association of Community Organizations for Reform Now (ACORN)

Cost of housing

Interest Rates
Down Payments
Expensive Housing Markets
Creative Financing

Boom

Politics

Affordable housing

Lowering lending standards

The Community Reinvestment Act of 1977 (CRA) directed “each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they were chartered consistent with the safe and sound operation of such institutions.” Over the years this act provided the basis for more insistent pressure on lenders from a variety of government officials and agencies to lend to those whom politicians and bureaucrats wanted them to lend to, rather than to those that the lenders would have chosen to on the basis of the lenders’ own experience and expertise.

Allowed politicians to set quotas affecting bank lending policies
To meet government imposed quotas banks were forced to revise lending standards and practices

Little or no down payments
Lower income qualifications
Accept questionable credit histories

Allowed pressure to be put on banks by community activists to:

make donations to local non-profit organizations
establish quotas for hiring bank employees
set aside certain amounts of business for firms owned by ethnic minorities

Bust

Declining Home Prices

Finacial Market Repercussions
Regulators

Economic and Political Adjustments

Politics of Blame
Political Solutions

Bailouts and Stimulus

Timing Problems
Inflation
Stimulation of Private Sector

Dale E Brown for Congress 2012