The Role of Congress in the Recession of 2008
If we can but prevent the government from wasting the labours of the people, under the pretence of taking care of them, they must become happy. Their finances are now under such a course of application as nothing could derange but war or federalism. The gripe of the latter has shown itself as deadly as the jaws of the former.
Thomas Jefferson, 29 November 1802
In 2008, the United States would enter a recession that was 32 years in the making. Actions taken by congress starting in 1977 would begin the process that led to the catastrophic collapse of the housing market, which directly brought about the banking crisis that triggered the recession. The Community Reinvestment Act (CRA) passed in 1977 would create the framework for a machine of catastrophe. Building upon that framework, the Housing Enterprises Regulatory Reform Act of 1992 would force banks by law, to write sub-prime loans in federally mandated numbers that would eventually cause banks to collapse in America and around the world. Exacerbated by ACORN (Association of Community Organizations for Reform Now) and the Cloward-Piven Strategy of Orchestrated Crisis, the economy continues to spiral down in 2009.
In order to put the fiscal situation of the United States into some context, a basic understanding of several factors is necessary. The CRA, Federal Housing Enterprises Regulatory Reform Act of 1992, ACORN, The Cloward-Piven strategy, the Government Sponsored Entities (GSE’s) Fannie Mae and Freddie Mac, and their relationship with Congress are all significant gears in the machine that stopped the economy in its tracks.
First, the Community Reinvestment Act of 1977, known as CRA, was designed to ensure banks serviced their entire communities, community being defined by the area from which the bank accepted deposits. CRA made law the concept that banks should make loans to everyone, and follow standards of safe banking at the same time (FDIC). This is a contradictory mandate, as banks cannot make good safe loans to borrowers who are high risk. It is not the bank that makes the borrowers high risk; it is the borrowers themselves who are the risk. This is the foundation upon which our current crisis is built. The rate at which these types of borrowers default on their loans is higher than loans made to those with sounder credit and better more reliable sources of income, making them unsafe for both the bank and the borrower. CRA dictated to banks that they were to disregard those safe practices and begin to meet the needs of what supporters called the underserved market, those with poor credit and or very low incomes who could not otherwise get a loan.
Alex Schwartz in an article for Fannie Mae reported that Community Organizations (ACORN for example) could and did challenge banks trying to merge or acquire new assets on meeting their CRA requirements and “by 1997 more than 300 negotiated and voluntary agreements had been launched, amounting to more than $353 billion (National Community Reinvestment Coalition [NCRC] 1998)” (qtd. in Schwartz). The dollars wrapped up in the Sub-prime market would only continue to pile up in the ten years following that report. This is the frame work that would hold the machine together. What is perhaps as relevant, Fannie Mae and Freddie Mack knew as early as 1997 what was happening.
Another significant cog in the machine was manufactured in 1992. Congress would pass the Federal Housing Enterprises Regulatory Reform Act. Among other things, this Law would build upon the CRA. It would set specific goals for numbers of loans written to very low income to moderate income households otherwise known as Sub-Prime market, and would set penalties banks would be subject to if they failed to meet their quotas (United States 102nd Congress Title III Sec 305). Because the Federal Government was backing the loans through Fannie Mae and Freddie Mac, it made the inherent risk of loaning money to very low income families or those with poor credit acceptable. This law also opened the door to lawsuits against banks that failed to “adequately” meet those goals.
This brings up the question of exactly what “adequate” means and this was the basis for the legal challenges made to the banking industry. The 1992 Bill established several levels of compliance; however anyone could now challenge a bank at any level of compliance (United States 102nd Congress). Agencies like ACORN would hire lawyers to file law suits challenging the banks on the numbers of loans they wrote to the sub-prime market. As reported by Parke Chapman, in general those finding themselves facing ACORN would give in, it was easier than fighting the pickets, intimidation and bad publicity which were the strong arm techniques used by ACORN in achieving their goals (Chapman). Robert Garsson reports much the same thing, reporting briefly on ACORN storming the American Bankers Association meeting around the time that Bill Clinton was beginning his career in Arkansas politics (Garsson).
This brings us to the fuel system of this machine. ACORN, what is ACORN? It has been for years heavily invested in making use of CRA and the quotas set up in 1992. Where did this organization come from? In the 1960’s a group calling itself the National Welfare Rights Organization (NWRO), led by George Wiley and founded on the principles developed by Robert Cloward and Francis Piven, was fighting for the rights of the poor (“Roots”). According to ACORN’s own history, Wiley had a protégée, Wade Rathke, whom he would send to Little Rock Arkansas in 1970, tasked with uniting people across the social spectrum in the fight for the rights of the poor. By using a clause in the Arkansas Welfare laws, he was successful, and ACORN was created out of that success. Originally founded in 1970 under the name Arkansas Community Organizations for Reform Now, it later became the Association of Community Organizations for Reform Now, and the acronym remained the same (“Roots”).
As part of a wider social goal, Wiley and Rathke used Cloward-Piven Strategy of Manufactured Crisis in their success. The Sophia Smith Collection Biography of Francis Fox Piven includes this information on the Strategy:
In Regulating the Poor, Piven and Cloward argued that any advances the poor have made throughout history were directly proportional to their ability to disrupt institutions that depend upon their cooperation. This academic commentary proved useful to George Wiley and the NWRO as well as a great many other community organizers and urban theorists (Sophia Smith Collection Smith College Northampton, MA).
NWRO and ACORN were both founded on the principles of making social changes by overwhelming Government agencies with huge numbers of welfare recipients to the point where those systems would collapse; forcing the Government to makes the changes desired by those orchestrating the movements. The success of ACORN in this area was not enough to bring about the sweeping social changes that Cloward, Piven, Wiley and Rathke wanted. From welfare, they branched out to include the financial industry. In 1999 Madeleine Adamson wrote a brochure for ACORN titled “To each their home”. In it, ACORN brags about its success in undermining the Banking industry:
… they [banks] agreed on more flexible underwriting criteria that take into account the realities of lower income communities. For example, income measurements include less traditional income sources such as food stamps, un-employment, part-time jobs, non-court-ordered child support and foster care payments. (Adamson)
Clearly these sources of income were not only non-traditional, some are in and of themselves signs of credit un-worthiness, yet ACORN successfully used the CRA to flood the mortgage market with large numbers of very risky loans using these very criteria. Adamson’s brochure for ACORN tells us they were successful in getting the banks to lower down payments and closing costs, again lowering the bar in terms of basic loan requirements for both qualifying and completing the loan process. The evidence of their success lay in the very scope of the collapse of the housing market. This ACORN brochure was brought to light by Matthew Vadum on October 28th, 2008 in an article titled “ACORN’s Food Stamp Mortgages”. In his article he states:
After the CRA went into effect, Saul Alinsky-inspired groups such as ACORN and the Greenlining Institute used the law to get into the shakedown business. Rev. Jesse Jackson egged them on at an ACORN "banking summit" in 1992, asking rhetorically, "Why did Jesse James rob banks? Because that's where the money was."
The shaking down of lenders intensified when then-Treasury Secretary Robert Rubin presided over the Clinton administration's effort to put the CRA on steroids. Banks began to make risky subprime loans and Fannie Mae and Freddie Mac aggregated them for sale in the secondary market as mortgage-backed securities. These practices made it easier for banks to give in to ACORN's demands to originate more and more doomed mortgages because they knew they could offload their high-risk debt on quasi-governmental suckers Fannie and Freddie, which were under intense political pressure to service the subprime market. (Vadum)
Vadum goes further, connecting ACORN’s overall strategy:
ACORN's overall strategy has a name. It's called the "Cloward-Piven Strategy" of manufactured crisis (named after two anti-capitalist sociologists) and it calls for packing the welfare rolls to encourage dependency on the government and to overload it with financial demands in order to hasten the collapse of American capitalism. (Vadum)
Clearly ACORN is an agency that uses the Cloward-Piven Strategy, and their work in overloading the banking system with toxic mortgages reached critical mass in 2007-8. All that was missing was a sudden increase in the cost of living to tip the system over, and that would come from a sudden spike in Oil prices in 2007 and 2008. As reported by Shane Sherlund for the Federal Reserve Board, when Oil went over 140$ a barrel, many of those very low income people could no longer pay for their mortgages, this and other predatory lending practices allowed by the CRA, would cause the huge spike in Defaulting Mortgages that shut down bank lending. In Figures 1 and 6 it is clear that as the price of Oil went up, so too did the rate of defaulting Mortgages: (Sherlund Fig. 1, 6).
Source: Sherlund, S. "The Past, Present, and Future of Subprime Mortgages." The Federal Reserve Board. 3 Dec 2008. The Federal Reserve. 7 Feb 2009 Figure 1, Figure 6
How can one “Community Organization” for the poor be able to do all of this? ACORN has several areas of influence, one of which is assisting people favorable to their goals in being elected to Congress. As reported by Ryan Grim in Politico, ACORN is a political ally of Democrats (Grim). ACORN works actively to get its candidates into office. They provide campaign canvassers to talk to voters, and they register new voters by the thousands, which have generated numerous lawsuits alleging voter registration fraud. ACORN also receives government funding; according to Senator John Bohner in the “Leader Alert”, ACORN received more than 31 Million dollars in federal funding since 1998. He also rightly calls into question the advisability of funding an organization under investigation by the FBI for Voter Registration fraud and other illegal activities. However, ACORN has friends. Examples of ACORN backed politicians can be found in the Congressional Black Caucus (CBC). In fact, the CBC is often the instrument by which ACORN pushes legislation because ACORN helped get the members elected. CBC members can be found at ACORN events and members of the CBC are the staunchest defenders of the GSE’s and of ACORN and its mission, in any Committee hearings in Congress, particularly the House of Representatives. Not coincidently, the CBC also works very closely with the GSE’s Fannie and Freddie. Jan 4th 2005 would see Daniel H. Mudd, the Interim CEO of Fannie Mae address the swearing in of the Congressional Black Caucus (which is exclusively Black and Democrat):
We will work hard inside our company to resolve the serious matters before us, to put our house in order, and to forge a new future. And all the while you will see Fannie Mae reaching out and listening to the (Black Congressional) Caucus. Over a century of endeavor, you earned the reputation as the conscious of congress. In many ways, I want to tell you today, you are also the conscious of Fannie Mae; keeping us on course to serve those who need serving the most (Mudd).
Fannie Mae and Freddie Mac were the Government Sponsored Enterprise’s (GSE’s) charged with guaranteeing subprime loans with United States Government Authority, they were a quasi-government agency. The relationship between the GSE’s and Congress is a corrupt one. The GSE’s gave campaign donations to members of congress in positions to regulate the GSE’s Fannie and Freddie. Between 1989 and 2008 the top three recipients of donations from the GSE’s totaled over $400 thousand. In the same time frame the GSE’s would make $4,844,572 in political campaign contributions (“Update”). In 2005 once again legislation capable of reforming and regulating the GSE’s was killed before it ever reached a vote; Senate Bill 190: the Federal Housing Enterprise Regulatory Reform Act of 2005 may well have prevented the disaster that occurred in 2007 (United States 109th Congress). It is not surprising to note that Senate Bill 190 did not make it out of the committee that has the single largest recipient of GSE Campaign Donations as its Chairman, Senate Finance Committee Chairman Chris Dodd (Mayer).
ACORN, Congress, Fannie Mae and Freddie Mac are all linked together. ACORN (and by extension it’s socialist founders) uses Congress to pass laws favorable to it, Congress uses Fannie and Freddie to keep ACORN happy. A ‘you scratch my back I will scratch yours’ circle of corruption that is built upon the backs of the poor of America, those people living right on the financial edge. Apparently it did not concern anyone involved what would happen to all of those families if the cost of living should suddenly rise. The Oil Spike of 2007 and 2008 would be just what was needed to start the cycle of widespread foreclosures that would devastate the banking industry and our economy.
Fannie Mae and Freddie Mac would go bankrupt in September of 2008 due to unprecedented numbers of foreclosures and were nationalized. Unable to back all of the aggregated loan bundles they had sold to investment bankers and overseas lenders, the GSE’s could not make the loans good when the homeowners stopped paying. The investment banks began to go bankrupt as well, Bear Sterns being the first; they got a bailout from the National Treasury. Lehman Brothers would follow a couple of weeks later, and they would get no bailout, the U.S. Treasury refused, recognizing that this was a systemic problem that every single bank writing or holding Mortgages in the United States was facing, and all for the same reasons. The source for this river of money was the homeowner, and when the homeowners stopped paying, the river dried up. The machine was complete; all the needed parts were in place and running great. Unfortunately, this machine was meant to destroy capitalism.
In conclusion, this is the plan as developed by Cloward and Piven in their article “A Strategy to end Poverty” written in 1966. The article abstract reads:
The article focuses on a strategy which affords the basis for a convergence of civil rights organizations, militant anti-poverty groups and the poor. If this strategy were implemented, a political crisis would result that could lead to legislation for a guaranteed annual income and thus an end to poverty. (Cloward and Piven)
The object was to create a guaranteed income for everyone, in other words, Socialism. The users of the Cloward-Piven Strategy used the plight of poor people to their advantage in the war on capitalism, and indeed we are all victims of it today. The use of this strategy has brought the banking system to its knees, and cost thousands of families their homes, and hundreds of thousands of people their jobs. It can easily be said users of Cloward-Piven have created more poor people, all while publicly stating it was their mission to help the poor. In reality, they were using the poor and creating a bigger poorer constituency to become dependent on Government help. With a willing constituency in congress, supported and elected with the strategy in mind, the Congress of the United States was the creator and ultimate facilitator of the economic disaster of 2008. As of February 2009, congress has not been called to account for its actions, nor has ACORN. The CBC is still defending its own failed policies and vigorously defending the GSE’s and ACORN. Perhaps this should not be surprising; they still need ACORN’s help in getting re-elected – and the machine rumbles along.
Adamson, M. "To Each Their Home." CapitalResearch.org. 10 Apr 2000. ACORN Housing Corporation. 15 Feb 2009
Boehner, J. "Leader Alert." House Republican Leader. 23 Oct 2008. United States House of Representatives. 14 Feb 2009
Chapman, P. "Building owners say ACORN is nuts." Real Estate Weekly 20 Sep 2000 14 Feb 2009
Cloward, R. A., and Piven F.F. "A Strategy to End Poverty." Nation 202.18 (02 May 1966): 510-517. Academic Search Premier. EBSCO. [Library name], [City], [State abbreviation]. 15 Feb. 2009
"FDIC Law, Regulations, Related Acts ." FDIC. 2009. FDIC. 13 Feb 2009
Garsson, R. (1993, February 8). Banks' Foes Have Clinton Connections, Too Series: 4. American Banker (pre-1997 Fulltext),p. 1. Retrieved February 14, 2009, from Research Library database. (Document ID: 70032152).
Grim, R. "ACORN outrage removes affordable housing provision." Politico 28 Sep 2008 14 Feb 2009
Mayer, Lindsay. "Update: Fannie Mae and Freddie Mac Invest in Lawmakers." OpenSecrets.Org. 11 Sep 2008. Center for Responsive Politics. 22 Feb 2009
Mudd, D. "Congressional Black Caucus Swearing-In." CSPAN Video Library. 4 Jan, 2005. CSPAN. 14 Feb 2009
"Roots of a Social Justice Movement (1970-75)." ACORN.org. 2005. ACORN. 13 Feb 2009
Schwartz, A. "From Confrontation to Collaboration? Banks, Community Groups, and the Implementation of Community Reinvestment Agreements." Housing Policy Debate 9.331 Dec 1998 631 - 662. 15 Feb 2009
Sherlund, S. "The Past, Present, and Future of Subprime Mortgages." The Federal Reserve Board. 3 Dec 2008. The Federal Reserve. 7 Feb 2009 Figure 1, Figure 6
Smith College Northampton, MA. "Frances Fox Piven Papers." Five College Archives and Manuscript Collections . 2009. Sophia Smith Collection Smith College Northampton, MA. 13 Feb 2009
United States 102nd Congress. "Federal Housing Enterprises Regulatory Reform Act of 1992 S. 2733 ." Library of Congress - THOMAS. 2009. Library of Congress. 13 Feb 2009
United States Senate 109th Congress, "S. 190: Federal Housing Enterprise Regulatory Reform Act of 2005." THOMAS Library of Congress. 109th Congress 2005-2006. Library of Congress. 15 Feb 2009
"Update: Fannie Mae and Freddie Mac Invest in Lawmakers." OpenSecrets.org. 11 Sep 2008. OpenSecrets.org. 14 Feb 2009
Vadum, M. "ACORN's Food Stamp Mortgages." The American Spectator 29 Oct 2008