Letters to the Editor

Clinton policies led to loan crisis

Re Sept. 23 column by Bruce Glensky, “Fertile ground is in the middle”

I liked his reference to the triggers of past U.S. financial crises made by Hyman Minsky. However, I was perplexed that Mr. Glensky did not address the radical change in the federal regulation of our home mortgage market that created the financial crisis of 2008.

Clinton issued an executive order in 1994 that placed on steroids the relatively innocuous Community Reinvestment Act (CRA) enacted in 1977 under the Carter administration. Under the enhanced CRA, federal regulators had the power to force banks to write an ever-expanding number of mortgage loans for people that were not able to make the monthly mortgage payments. To encourage banks to comply with these new regulations, Fannie Mae and Freddie Mac were directed by HUD to purchase these subprime loans from the banks on terms that guaranteed a profit to the banks on the loans that they originated and sold to the two agencies. Finally, Clinton appointed several of his cronies to senior management and board of director positions in Fannie and Freddie to ensure that these agencies aggressively purchased ever increasing volumes of subprime mortgages. A new executive compensation plan based upon the volume of mortgages purchased was introduced at Fannie and Freddie. This bonus plan was designed to make top management officers at the two agencies wealthy as a reward for implementing these reckless federally mandated mortgage purchase policies.

Once Bush became president, he attempted repeatedly to get legislation passed to reverse these oppressive and reckless federal regulations. Each time, the Senate Democrats blocked these legislative attempts with filibusters.

The repeal of critical provisions in the Glass-Steagall Act in 1999 under the leadership of the Secretary of Treasury Robert Rubin, formerly the CEO of Goldman Sachs, permitted investment banking firms to gamble in the mortgage securities market with depositors’ money. Although it can be argued that this repeal constituted one of the proximate causes of the 2008 crisis, it was not the fundamental cause of the collapse of the home mortgage market.

Mr. Glensky is correct when he writes that “the large government vision of President Obama and the political left … destroyed our balance sheet.” However, his conclusion that “fertile ground is in the middle” provides no guidance for a desperately needed change in federal government policies. The future of our republic depends upon immediately reducing the size and intrusiveness of the federal government and rapidly growing the private sector of the economy. Sadly, the size of our national debt may have already grown past the ability of our republic to survive more than another decade or two no matter who we elect.

The writer lives in North Myrtle Beach.