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Anatomy of a Disaster


In 1947 the Housing and Home Finance Agency was established under the watch of President Harry S. Truman. This was the beginning of the disaster. Housing is not a function of the federal government (see Tenth Amendment) and Home Finance is not a function of the federal government (look under “Bank” in the dictionary). The seed had been planted but it would take sixty years for the tsunami to appear.

In 1949 President Harry S. Truman signed the Housing Act of 1949 which was passed by the Congress to help eradicate slums and promote redevelopment. Eradicating slums and promoting redevelopment are not functions of the federal government (see Tenth Amendment) and thus this act was illegal. Not a single state or local government agency had the courage to challenge this act in court and the cavalcade of illegal acts would continue to follow.

In 1959 President Dwight D. Eisenhower signed the Housing Act of 1959 allowing funds for elderly housing. When you’ve done something illegal once, the next time it is easy.

In 1965 President Lyndon B. Johnson creates HUD as a cabinet level agency by signing the Department of Housing and Urban Development Act. We now have a cabinet level department created to administer and control illegal acts of the federal government.

In 1968 the (illegal) government mortgage-related agency Federal National Mortgage Association (Fannie Mae) is converted from a federal government entity to a stand-alone government sponsored enterprise (GSE) which purchases and securitizes mortgages to facilitate liquidity in the primary mortgage market. The move takes the debt of Fannie Mae off the books of the government. There are at least two illegal acts here.

In 1969 the Brooke Amendment (named after the RINO Senator from Massachusetts, Edward Brooke) establishes that low-income families only pay no more than 25 percent of their income for rent. Another small step in the march to socialism because you know who pays the other 75 percent (or whatever is left) – you the taxpayer.

In 1970 the Federal Home Loan Mortgage Corporation (Freddie Mac) is created by the Congress as a GSE to buy mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors on the open market. Now we have two illegal enterprises, Fannie Mae and Freddie Mac.

In 1974 the Equal Credit Opportunity Act imposes heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or age. This is the only legal act in this entire sordid affair, and it was the only act that was necessary. All the previous housing acts of the federal government were not only illegal but also unnecessary. This one act covers all the bases. Socialists cannot stop there, however, since the process of redistributing wealth must be completely institutionalized.

In 1974 the Housing and Community Development Act of 1974 allows community development block grants and help for urban housing. Let the federal government coercion begin. You, the states, act in a certain way, and we’ll ship you some money – otherwise we will not.

In 1977 President Jimmy Carter signed the Community Reinvestment Act (CRA). This illegal act and the illegal GSEs were the machinery used to eventually destroy the United States housing market. This act was justified by the Socialists (and some RINOs) to stop the process of “redlining.” The Equal Credit Opportunity Act, properly enforced, had already accomplished that task, however. What it actually did was to give the federal government power to coerce banks to loan money to unqualified applicants with specific penalties for those financial institutions that did not comply. The CRA also offered up the GSEs as support for this activity. This act was laxly enforced until 1993, when Socialist President Bill Clinton took the reins.


When a good Socialist sees an opportunity to redistribute the wealth, he usually acts expeditiously. In 1993, after forty-six years of illegal acts, the establishment of illegal government corporations, and the creation of an illegal cabinet department, the machinery was set for the biggest Socialist redistribution of wealth in United States history. In early 1993, shortly after taking office, President Bill Clinton ordered new regulations for the CRA that would increase access to mortgage credit for inner city and distressed rural communities. On January 31, 1995, another “date which will live in infamy,” the new rules went into effect.

The new rules required strictly numerical assessments to get a satisfactory CRA rating: using federal home loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to a specified neighborhood, income group, or race; allowing community groups that marketed loans to target groups to collect a fee from the banks. The new rules substantially increased the number of risky mortgages. Related rule changes gave the GSEs extraordinary leverage, allowing them to hold just 2.5 percent of capital to back their investments, vs. 10 percent for banks.

Banks were forced to set up CRA departments, a CRA consultant industry was created and new financial-services firms “helped” banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as a result of CRA in 2000, these groups nationwide had received 9.5 billion (yeah, that’s billions) in services and salaries. As of that time such groups also had received tens of billions (yeah, that’s billions) of dollars in multi-year commitments from banks including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action coalition $13 billion; etc, etc. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.

Bill Clinton was somewhat fortunate in two respects. He got this all done just as the Republicans were taking control of the House and Senate in 1995, and the Republicans were not paying attention. Note: some Republicans are Socialists, too. Even if they had been paying attention, they didn’t have enough votes to overcome a veto, so perhaps they looked elsewhere to make progress.

God could have sent us more White House interns in Clinton’s first term and possibly spared us this disaster. Perhaps this is proof that God does not meddle in the affairs of man.


By 2000 Socialist President Bill Clinton had a raging forest fire started, but no one wanted to put it out. In 2001 the U.S. Federal Reserve, under Chairman Alan Greenspan, lowered the federal funds rate 11 times, from 6.5 percent to 1.75 percent. The justification for this action was to get us out of a recession. We had a new Federal Reserve policy – the way to put out a fire is to throw gasoline on it.

In 2002 President George W. Bush set a goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies, and a Fannie Mae commitment of $440 billion (yeah, that’s billions) to establish Neighbor Works America with faith-based organizations. We need more gasoline to get this fire out.

In 2003 the Bush Administration recommended what the New York Times (does this look familiar) called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.” Socialist representative Barney Frank of Massachusetts, soon to become head of the House Banking Committee claimed of the two GSEs-“These two entities … are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we see in terms of affordable housing.” For the first and only time (until it was too late) the Bush Administration tried to act on this crisis (USFA Note: When you see liberals use the term “affordable” rest assured that some type of redistribution of wealth is on the way).

In 2004 HUD ratcheted up Fannie Mae and Freddie Mac affordable housing goals for the next four years from 50 percent to 56 percent. From 2004 to 2006 the GSEs purchased $434 billion (yeah, that’s billions) in securities backed by subprime loans (for subprime loans substitute the terms “junk bonds” or “worthless garbage”). Liberal doses of gasoline required to extinguish the fire.

By 2007, the GSEs owned or guaranteed nearly half of the $12 trillion U.S. mortgage market. When the lid blew off this problem starting in early 2007, almost every major country in the world was affected. Suddenly no one wanted to buy “worthless garbage” – what a surprise.


The three biggest villains in the 2008 housing crisis in order of importance:

President Bill Clinton: He unleashed this nightmare on the planet and then, in 2008 when the results came in, acted as if he had no culpability.

President George W. Bush: He perpetuated the nightmare and, except for a few token efforts at reform, allowed it to fester until the infection set in. He then followed that up with the wrong remedy in 2008.

The Federal Reserve: Went in lockstep with both administrations and provided the key interest rate reductions that magnified the problem.

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