THE DEFINITION OF AUDACITY

The House and Senate Democratic drafts contain an indefensible and well-hidden provision: ...at least 20% of any profit realized from the sale of each troubled asset purchased under the Paulson plan [must] be deposited in either the Housing Trust Fund or the Capital Magnet Fund. Only after these funds get their cut of the profits are "all amounts remaining . . . paid into the Treasury for reduction of the public debt."
...
[These] are a pair of government slush funds created in July as part of the Economic Recovery Act that pump tax dollars into the coffers of low-income housing advocacy groups, such as Acorn.

Acorn, one of America's most militant left-wing "community activist groups," is spending $16 million this year to register Democrats to vote in November. In the past several years, Acorn's voter registration programs have come under investigation in Ohio, Colorado, Michigan, Missouri and Washington, while several of their employees have been convicted of voter fraud.

...Acorn has promoted laws like the Community Reinvestment Act, which laid the foundation for the house of cards built out of subprime loans. Thus, we'd be funneling more cash to the groups that helped create the lending mess in the first place.

This isn't the first time this year that Democrats have tried to route money for fixing the housing crisis into the bank accounts of these community activist groups. The housing bill passed by Congress in July also included a tax on Fannie Mae and Freddie Mac to raise an estimated $600 million annually in grants for these lobbying groups. When Fannie and Freddie went under, the Democrats had to find a new way to fill the pipeline flowing tax dollars into the groups' coffers.

The [1977] bill encouraged the Federal National Mortgage Association, commonly known as Fannie Mae, to enable mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. It also encouraged the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to buy mortgages on the secondary market and sell them as mortgage-backed securities on the open market. Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.

These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans."

While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie's and Freddie's rules.

In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.

Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended.

Congress REQUIRED banks to lower their credit standards and give out loans to those who didn't qualify otherwise:

Congress Encouraged Risky Home Lending
Regarding your editorial "Fannie Mae's Patron Saint" (Sept. 9): We are all talking about subprime loans and the havoc they've wreaked on the economy, but no one is talking about why banks give out these loans -- they are required to by law. Since the Community Reinvestment Act of 1977, Congress requires banks to offer loans to minorities in low-income areas, even if the clients can't make down payments, don't have good credit histories, or even employment histories.

Since these clients are high-credit risks, the only loans lenders can offer are high-interest loans that don't require a down payment or good credit history. These loans frequently default.

In order to cut down on the number of subprime loans an institution must make, it must cut down on all loans, because its subprime business is a proportion of its overall business.

Are we willing to crash our economy over some misplaced idealism? Congress must rescind the CRA or this problem will continue beyond today's bailouts.

M. Franks
Little Rock, Ark.

Today's mortgage crisis was directly caused by federal government interference. The worst was the stick of the Community Reinvestment Act rules which, since 1995, have marginalized the credit checking of applicants as "discriminatory." On top of that, the carrot of Freddie and Fannie's "guaranteed" money led to an inevitable crash.

Instead of multiple bailouts totaling $1 trillion, we need an immediate emergency repeal of the Community Reinvestment Act, whose vicious result has been to put lobbyists in charge of lending.

Anne Moroney
Garden City, N.Y.

Many Cooks Had a Hand in Repealing Glass-Steagall in '99

Bill and Hillary Clinton adviser Lanny Davis has rightfully taken John McCain to task in "The GOP Leads a 'Socialist' Bailout" (op-ed, Sept. 22) for voting to repeal the Glass-Steagall Act of 1933.

The purpose of Glass-Steagall was to restrict the integration of banking, insurance and stock trading.

While Mr. Davis, in his half-truth analysis, blames Republicans for repeal of the act, he conveniently fails to mention the key role the Clinton administration played in collaboration with Republicans in crafting the Financial Services Modernization Act of 1999 to replace Glass-Steagall.

The new legislation was signed into law by none other than President William Jefferson Clinton. How could Mr. Davis fail to make mention of this important fact in his column?

Gerald T. Taché
Stuart, Fla.

At the heart of the issue is the 1933 Glass-Steagall Act, which required the separation of commercial banks [where we have our checking accounts] and investment banks [where we would buy and hold stocks from IBM or Microsoft or mutual fund stocks]. The law reflected the day's conventional wisdom that the existence of financial behemoths like J.P. Morgan -- which included a deposit-collecting retail bank and a Wall Street brokerage -- had set the stage for an economic implosion.

In 1999, amid an unprecedented economic boom, those walls were torn down with the passage of the Gramm-Leach-Bliley Act, which allowed mergers of commercial and investment banks. That law was hammered out in the wake of the announced merger of Citicorp and Travelers Group, which spawned Citigroup Inc.

Since then, the lines between Wall Street and Main Street banks have increasingly blurred, with more banking companies aspiring to become all-purpose "financial supermarkets." With Goldman and Morgan Stanley's moves [this past few weeks], the boundaries have essentially vanished.

Some politicians and bankers say the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act, and other deregulatory measures set the stage for today's mess. They argue that the mortgage-lending frenzy was fueled by companies like Citigroup, which raked in huge profits by repackaging mortgages into securities and selling them to investors around the world.

"Without reform of Glass-Steagall, one could not have had J.P. Morgan Chase rescue Bear Stearns and one could not have Bank of America come to the assistance of Merrill Lynch," said James Leach, the former Iowa congressman who was instrumental in rolling back the Glass-Steagall restrictions on banking.

But when the banking world was required by law to give out questionable loans, bringing on this mess, neither Obama, McCain, nor you nor I are correct in pointing the gun solely at Wall Street or even at Main Street banks.

No. The gun has to be pointed at the two Democrat Presidents most responsible for the Community Reinvestment Act. It has to be pointed at the Congresses that passed that law's two versions, and at federal regulators ever since 1977 and all in political office who ignored the warnings of Alan Greenspan, Bush and others (which contrary to his assertion in the debate last night, did not include Barack Obama).

Obama and the Democrats insist on focusing the American people's minds on the whodunit and whotoblame game, for everything for which they don't really have a good solution. What an ever-loving waste of our time, especially when a little research by an amateur like me can summarize that it was DEMOCRATS mostly to blame for the mess this country is in right now.

I for one don't want Obama to "pay for every penny" of Obama's plan by taking and spending $293 BILLION of our money (it went UP from $287 Billion as of February 2008!)

But now that we know who really to blame, how does it get fixed? I don't know, but I do know one thing: the bailout plan has to remove that 20% skim-off by Democrats.

Imagine how much huger the deficit and federal debt will be, after the Democrats get their way?