Our current recession could not have begun without the bad policies, blindly and foolishly implemented, of the Federal Government. President Clinton and Democrat Leaders pushed, beginning in 1993, for more low income and minority home ownership. They passed the Community Reinvestment Act and gave Fannie Mae and Freddie Mac the mission to facilitate low income and minority home ownership by requiring them to purchase what we refer to now as sub-prime loans.
Under Clinton Administration pressure, regulators had to come up with new lending rules, under which banks had to show that they had made a required number of loans to low- and moderate-income borrowers, and that they had come up with innovative or flexible ways to accomplish this. HUD pressed for new mortgage lending policies under the 1994 National Homeownership Strategy developed at Clinton's request. Among other things, it called for financing strategies, fueled by the creativity and resources of the private and public sectors, to help homeowners that lack cash to buy a home and to make the payments.
First result: Homeownership during the Clinton Administration went up 5%( as a comparison, home ownership during the Bush Presidency went up 1%);
Second result: Sub-prime loans made to borrowers with bad credit records rose from 7.2% to nearly 19%.
Standards for other loans fell as well. Freddie and Fannie eagerly, as instructed by the Federal Government, bought all these loans.
Yes, of course the investment banks and wall street come up with a way of making these obviously bad investments look good by creating the device know as derivatives. Yes, they were both foolish and greedy. Yes, they acted like gamblers instead of bankers...but that is merely a matter of degree of risk, not really much more than admitting what has been true all along.
But here is the key...absent Barney Frank's committee and resulting House action coupled by action in the Senate honcho'd by Dodd, the opportunity for bad credit risks, Fannie Mae, Freddie Mac, the Investment Banks and Wall Street to act badly would NOT have occurred. End of story.
Dodd is gone...Frank remains.