Banking Financial Reform—Is More Bureaucracy The Answer?

by: Pamela D. Hart

As we know our Financial System took a major hit at the end of 2008. Let’s take a little look see at how this played out, shall we…

The Community Reinvestment Act is a federal law that was passed in 1977 to “encourage” banks and savings associations “to meet the needs of borrowers in ALL segments of their communities, [emphasis mine] which included low and moderate-income neighborhoods”. Congress felt this law needed to be passed in order to prevent discrimination against low-income and minority borrowers.

There were legislative changes made to the CRA over the years, but the most pertinent one, in my opinion, was the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which required Freddie Mac and Fannie Mae to devote a percentage of their lending to support affordable housing. Basically this Act instructed Freddie and Fannie to divide its business into three categories: low and moderate-income, underserved, and special affordable. The goal was to increase home-ownership among minorities and the poor in rural and urban areas.


In November of 1999, a part of the Glass-Steagall Act of 1933 was repealed with the Gramm-Leach-Bliley Act of 1993, which permitted commercial banks, investment banks and insurance companies to consolidate. While The Gramm-Leach-Bliley Act was a Republican backed bill, President Clinton said he would veto it unless it contained verbiage that would ensure banks wouldn’t cut back on mortgages to low income and minority borrowers.


Due to pressure from the Clinton Administration, in 1999 Fannie began issuing subprime loans, which increased the number of minority and low income home owners. The expansion of easy credit to home buyers with lesser ability to pay it back and then bundling them as securities made the CEO’s of Fannie and Freddie, and many others on Wall Street, a lot of money, but also made our market quite unstable.

In 2000 Fannie Mae launched the American Dream Commitment, a ten year pledge to provide $2 trillion dollars in low-income and minority home financing. By March 2003 Fannie and their lending partners had fulfilled over half of their goal. Other lending partners included: Bank of America; Bank One Corporation; Charter One Bank; Countrywide Financial Corporation; Doral Financial Corporation; First Horizon Home Loan Corporation; Fleet Boston Bank; Huntington Mortgage Company; Irwin Mortgage; J.P. Morgan Chase & Co.; and Standard Mortgage Corporation and they were “applauded” for surpassing the halfway mark so quickly. Together they led the market in narrowing the homeownership gaps, increasing the availability of affordable housing and serving Americans of color and low-income.

The 2000 plan included $420 billion to help minority home financing but in 2002 it was increased to $700 billion in an effort to help advance the Bush Administration’s minority homeownership proposals. Fannie also met or exceeded HUD’s affordable goals for 9 consecutive years which included 52% of their business derived from low-income families; 33% derived from underserved families; and over 21% derived from very low-income families.


Fannie and Freddie loaned at first because they were pressured from HUD (Department of Housing and Urban Development) who was under pressure from Congress. With repeal of part of the Glass-Steagall Act it gave financial institutions and insurance companies free reign without any oversight to basically sell debt onto our market, and make large bonuses to boot, and now we Taxpayers are left holding the tab. In my opinion, the CRA and the Gramm-Leach-Bliley Act were two big factors in the downfall of our financial system.


I am in NO way suggesting that any bank, investment company or insurance company discriminate due to skin color or ethnicity; however, I do NOT condone giving anyone a home loan, a car loan, or even a credit card if they are NOT able to pay it back. The desire to increase home ownership in low-income and minority neighborhoods is a noble cause, but it may not be a feasible one, considering the outcome of many of these loans. I believe everyone should have a place to live—a home; but I do NOT believe everyone is ENTITLED to OWN a house. The two are completely separate from one another.

I believe if Congress hadn’t pressured HUD and HUD hadn’t pressured the banking institutions and if the CRA wasn’t abused AND if Gramm-Leach-Bliley hadn’t repealed part of Glass-Steagall we wouldn’t be sitting with this current banking mess. There is enough blame to go around, but I think it all began with Congress wanting to give something that wasn’t earned, i.e. the CRA.

A person must EARN a good credit score, regardless of skin color or ethnicity. Neither of which can be used against you on a credit application, by the way. HOWEVER your lack of a job; adequate funds; time with your employer; and past credit history MOST certainly do and those issues are NOT discriminatory. It’s time we stood on the facts and stopped being afraid of being called prejudiced or racist when the FACTS prove otherwise; because as we can see, the results can be devastating.

I also don’t think that Government should be involved in every aspect of our lives, BUT oversight IS important in certain areas, especially when large sums of money are involved. These Institutions, like AIG and JP Morgan should’ve had some kind of Clearing House. As it stands they did not and they got away with billions.

And last, but certainly NOT least, when we Taxpayers bailed-out all these lame companies, which placed us in this precarious situation, there should’ve been stipulations on OUR money. It should NOT have been handed to them willy-nilly. As it stands we don’t know where it went and we don’t know why these banks still aren’t lending. They SHOULD be lending and we should’ve demand that they follow some rules. However, those decisions don’t seem to be up to us, although it’s our money.

I agree that something needs done, however, oversight is one thing, regulations another, and handing over total control to government is something entirely different.

The financial legislation that is being suggested now is a little scary though, in my opinion. With sentences like: The lack of transparency and standards in markets for securitized loans helped to weaken underwriting standards and …leaving many Americans with obligations that they did not understand and could not afford. Is it any wonder Americans are confused? The government insisted that underwriting standards be weakened in order to give minorities and lower-income families houses! NOW they’re concerned those families couldn’t afford them! What does LOW INCOME mean to these brain trusts?

This legislation also suggests that the Federal Reserve have total oversight of the largest financial institutions and permits Treasury Secretary Geithner as major overseer. That’s terrifying! Kinda like putting a child molester in charge of a day care center! The guy’s a friggin tax cheat. Sorry, but I just can’t get passed that no matter how hard I try.


Here are 6 things that the GOP feels we need to know about the bill [courtesy of Ruby Slippers]. Read the 1,408 page bill here. I know, they don’t write short bills anymore. Or you can read the summary here.

Again we have the Democrats telling us Government can fix this disaster with yet another bureaucracy, and the Republicans telling us that more government is not the answer.

So, tell me what YOU think.