According to Arizona Senator Jon Kyl;
“The banks were forced - literally forced - to make mortgage loans to a lot of people that in the past they hadn’t made them to, because (the people) couldn’t afford them,” Kyl said in a teleconference with Arizona reporters.
“But they were deemed to be red-lining, to be discriminating against people who need to share in the American dream of home ownership. Well, it’s a great dream, and we want as many people to share in it as possible, but not if they can’t afford it,” he said.
Well, that is about as clear an explanation as I’ve heard.
Loans to marginal lenders became troubled. Fannie Mae and Freddie Mac took care of the loans by bundling them and selling them to other financial institutions.
Kyl said he helped draft bills in 2003 and 2004 intended to tighten regulation of Fannie and Freddie in an effort to forestall a potential multibillion-dollar bailout.
“Several pieces of legislation were offered up. I could be partisan and tell you who they were offered by and who stopped them, but I won’t. The bottom line was that the prediction, unfortunately, came true,” he said.
Sen. Kyl was a key player in negotiating the Wall Street Bailout Bill (A.K.A., Economic Stabilization Bill).
Via the East Valley Tribune.
{ 5 comments… read them below or add one }
EdB 10.08.08 at 7:32 am
Did I miss the part where big money companies were forced to buy and sell and buy and sell the debt packages, or was that good old fashioned greed?
John Wake 10.08.08 at 7:38 am
There was plenty of greed to go around from the guy buying his first investment property with no money down and a large negative cashflow, to the guys on Wall Street buying collateralized debt obligations.
Sam in Austin 10.08.08 at 10:20 am
It started back in the Carter administration with the creation of the Community Reinvestment Act. Over time, conservatives tried for more oversight and regulations, but the liberals blew that off. The liberals wanted to get more people into homes regardless of how qualified they were and the lenders thought Freddie and Fannie had their backs.
Peter Fork 10.08.08 at 12:15 pm
“conservatives tried for more oversight and regulations, but the liberals blew that off.”
Can someone explain to me why the Republicans couldn’t pass a bill to regulate Fannie and Freddie when they had the majority in Congress and Senate from 2000 to 2006?
dan 10.09.08 at 5:54 am
Here’s some thoughts for MPS courtesy of Professor Ron Wilcox at the University of Virginia. No one ever says why wealth disparity is “bad”, but this guy trys to:
Wealth Disparity and the Decline of Saving
Instead, Wilcox points to the widening gap between rich and poor. The concentration of income among the wealthiest 1 percent of Americans has roughly doubled in the last 30 years. In 2004, for example, the wealthiest 1 percent of Americans enjoyed a 12.5 percent increase in income, while the bottom 99 percent gained only 1.5 percent. (The gap is likely wider, since capital gains are excluded.)
As a result of social and geographic mobility, most individuals have a consumption reference group that comprises people with varying amounts of income. Those at the top shift our frames of reference (something Robert Frank also argues in his book “Falling Behind.”
“As income disparities accelerate, I observe some people in my reference group who seem to be able to afford nice things that I do not currently have,” Wilcox writes. “Because this observation is a one-sided event, and individuals may exaggerate their own consumption when speaking with others, disparities in remembered consumption accelerate even more quickly than actual disparities.”
The Extravagance of Memory
Combine the bragging of increasingly wealthy neighbors with the psychology of memory, and you have people not just competing with the Joneses, but competing with their embellished memories of the luxuries the Joneses enjoy.
“The psychological trick people play on themselves is that when they view consumption, they tend to concentrate on idealized consumption,” says Wilcox, adding that the psychology of arousal comes into play (in a mental, not sexual context). Research has found that brain activity increases when we see something novel or unexpected.
“When we are aroused mentally, we deal with information differently,” Wilcox explains. “People’s memories are stronger. We take as anchor points what people around us consume — we remember things we like and don’t like, and then construct an idea of what is appropriate to consume. What the memory constructs is more extravagant.”